YES BANK - ANNUAL REPORT - 2012 - REVIEW / SUMMARY

YES BANK

ANNUAL REPORT FOR FY 2012

SUMMARY

Here are some interesting excerpts from the Annual Report of YES BANK for the FY 2012.

GROWTH PLAN :- In FY 11, YES BANK launched its Growth – VERSION 2.0- a vision of establishing 900 branches, 2000 ATMs, 12,750 employees, Rs.125,000 Cr. Deposit base, Rs.100,000 Cr. Loan book and a Rs.150,000 Cr. Balance Sheet size by 2015.

In last 9 months, Yes Bank has increased its branch network by over 100, and is adding almost 30 to 40 every quarter. 

YES BANK plans to maintain its focus on garnering CASA  focusing on B2B2C alliances and segmental strategies - to achieve CASA up to 30% of its total deposit base.

AWARDS :- YES BANK has been ranked 557 th among FT – 1000 Banks, up 333 places (second highest jump for any Bank worldwide) from 890 rank last year.

YES BANK was awarded as India's No. 1 Bank at the Financial Express Best Banks Awards 2011, and for the third consecutive year, received the 'Fastest Growing Bank' award at the Businessworld Best Bank Awards 2011, the 'Best Private Sector Bank' Award at Dun & Bradstreet - Polaris Software Banking Awards 2011, the 'Sustainable Bank of the Year (Asia/Pacific)' Award at FT/IFC Sustainable Finance Awards 2011, London, and a 'Special Jury Commendation in the Best Private Sector Bank category' at the CNBC – TV 18 Best Bank and Financial Institution Awards in September 2011.

YES Bank was conferred the 'Indian Power Brand' at the Indian Power Brands – Global Conclave, London 2011; YES BANK also won the 'India's Fastest Growing Bank of the Year' award at the Bloomberg UTV Financial Leadership Awards 2011, and the 'Silver Shield for Excellence in Financial Reporting' by the ICAI in the Private Banks (including Cooperative Banks) category,– and several other awards

DIRECTORS’ REPORT (Rs.in Crs)

Key Performance Indicators

Net Interest Margin :: 2.8% :: 2.9%

Return on Annual Average Assets :: 1.5% :: 1.5%

Return on Equity :: 23.1% :: 21.1%

Cost to Income Ratio :: 37.7% :: 36.3%

Non Interest Income to Net Revenues :: 34.7% :: 33.3%

CAPITAL RAISING (Tier I&II)

Paid-up capital increased to Rs.352.99 Cr as at March 31, 2012 from Rs.347.15 Cr as at March 31, 2011.Yes Bank also raised a sum of Rs.150 Cr by way of Tier I perpetual bonds, US $ 75 Million by way of Upper Tier II capital and Rs.864.5 Cr by way of Lower Tier II subordinated bonds during FY 2011-12 and utilised them  for strengthening  Capital Adequacy Ratio (CAR).

Yes Bank is well capitalised with a CAR (as per Basel II) of 17.9 % as at March 31, 2012; of which Tier I Capital Ratio was 9.9% and Tier II Capital Ratio was 8.0%.

Balance Sheet

The Balance Sheet grew by a healthy 24.8% to Rs.73,662.1 Cr as at March 31, 2012 from Rs.59,007.0 Cr as at March 31, 2011. The Bank recorded a growth of 10.5% in its loan book with advances increasing to Rs.37,988.6 Cr, on the back of growth in lending to retail and micro SMEs along with large and mid-sized corporates. Corporate and Institutional Banking & Commercial Banking constituted 81.8% of the advances as at March 31, 2012. Branch Banking (MSMEs and Retail) grew at an impressive rate over FY11 in line with the Version 2.0 goals of the Bank to increase granularity and now comprise of 18.2% of total advances.

Summarised Financial Position:  (Rs. in Crs)

Particulars :: FY 12 :: FY 11 :: FY 12% over FY 11

Assets

Advances :: 37,988.6 :: 34,363.6 :: 10.5%

Investments :: 27,757.3 :: 18,828.8 :: 47.4%

Others ::  7,916.2 :: 5,814.6 :: 36.1%

Total Assets :: 73,662.1 :: 59,007.0 :: 24.8%

Liabilities

Shareholders' Funds :: 4,676.6 :: 3,794.1 :: 23.3%

Deposits :: 49,151.7 :: 45,938.9 :: 7.0%

Borrowings :: 14,156.5 :: 6,690.9 :: 111.6%

Others :: 5,677.3 :: 2,583.1 :: 119.8%

Total Liabilities :: 73,662.1 :: 59,007.0 :: 24.8%

 Yield on Advances for FY 12 increased by 2.2% from 10.0% in FY 11 to 12.2% in FY12. 

Deposits increased by 7.0% to Rs.49,151.7 Cr as at March 31, 2012 which comprised of Rs.4,888.4 Cr of demand deposits, Rs.2,503.8 Cr of savings deposits, Rs.41,759.5 Cr of term deposits. Term Deposits increased by 1.4% during FY 12 while Savings deposits increased by 206.4% and current deposits increased by 24.3% as at March 31, 2012 over March 31, 2011. 

CASA deposits grew by 55.6% to Rs.7,392.1 Cr taking  CASA ratio to 15.0% as at March 31, 2012 up from 10.3% as at March 31, 2011. Retail Banking Liabilities (CASA + Retail Banking term deposits) improved from 23.5% of Total Deposits as at March 31, 2011 to 32.7% as at March 31, 2012.

Total borrowings increased from Rs.6,690.9 Cr as at March 31, 2011 to  Rs.14,156.5 Cr as at March 31, 2012. Yes Bank on the back of Moody's International rating (Baa3, in line with India’s sovereign rating) increased its medium term foreign currency borrowing from Rs.1,833.7 Cr as at March 31, 2011 to Rs.2,917.9 Cr as at March 31, 2012. This is in addition to raising Rs.1,246.1 Cr as Tier II borrowings. The Bank also raised Rs.150.0 Cr in the form of Innovative Perpetual Debt Instruments (Tier I). Tier I & Tier II debt bolster the capital adequacy of the Bank while enhancing the liability duration of the Balance Sheet.

Profit and Loss Statement

Net interest income grew at an impressive rate of 29.6% from Rs.1,246.9 Cr in FY 11 to Rs.1,615.6 Cr in FY 12. The increase in NII was driven by 33.4% increase in average interest bearing assets and a relatively stable net interest margin. The Bank also displayed strong growth in non interest income, which grew from Rs.623.3 Cr in FY 11 to Rs.857.1 Cr in FY 12, representing an increase of 37.5%. The percentage of non-interest income to net revenues (net interest income plus non-interest income) was 34.7% in FY 12 as compared to 33.3% in FY 11.

Rising interest rates in FY 12 resulted in increase in cost of funds by 1.7% during FY 12 to 8.8% as compared 7.1% in FY 11. Although, yields on advances also increased, there was a marginal decline in net interest margins from 2.9% in FY 11 to 2.8% in FY 12.

Yes Bank added 142 new branches during the year taking the total branch count to 356, up 66% over last year. 

Operating expenses increased by 37.2% from Rs.679.8 Cr for FY 11 to Rs.932.5 Cr in FY 12. Continued focus on cost control has resulted only in a marginal increase in cost to income ratio to 37.7% in FY 12 compared to 36.3% in FY 11, in spite of the significant increase in headcount and number of branches. Employee costs accounted for 51.0% of non-interest expenses for FY 12 as against 53.3% for FY 11.

Operating profit before tax increased 29.4% to Rs.1,540.2 Cr for FY 12 compared to  Rs.1,190.4 Cr for FY 11.

Net Profit after tax was Rs.977.0 Cr for FY 12, an increase of 34.4% as compared to a net profit of Rs.727.2 Cr for FY 2010-11. The effective tax rate in FY 12 was 32.6%.

The return on average assets was 1.5% while return on equity was 23.1% for FY 12. The return on assets and return on equity have been in excess of 1.5% and 20% respectively for the past 4 years.

Selective Operating Result Data: (Rs. In Cr)

Particulars :: FY 12  ::  FY 11 : % Growth

Net Interest Income :: 1,615.6 :: 1,246.9 :: 29.6%

Non Interest Income:: 857.1 :: 623.3 :: 37.5%

Total Net Income :: 2,472.7 :: 1,870.2 :: 32.2%

Operating Expenses :: 932.5 :: 679.8 :: 37.2%

Employee Costs :: 475.1 :: 362.3 :: 31.1%

Other Costs ::  457.4 :: 317.5 :: 44.1%

Operating Profit :: 1,540.2 :: 1,190.4 :: 29.4%

Provisions :: 90.2 :: 98.2 :: (8.1%)

Profit before Tax :: 1,450.0 :: 1,092.2 :: 32.8%

Provision for Taxes :: 473.0 :: 365.0 :: 29.6%

Profit after Tax :: 977.0 :: 727.2 :: 34.4%

Key Ratios:

Net Non-Performing Advances (NPA) to Net Advances ratio is 0.05% as at March 31, 2012 as compared to 0.03 % as at March 31, 2011. Gross non-performing advances stood at Rs.83.9 Cr as at March 31, 2012 as compared to Rs.80.5 Cr as at March 31, 2011. Specific loan loss provision balance was Rs.66.4 Cr as at March 31, 2012 resulting in a specific cover of 79.2%.

The general loan loss provision made during FY 12 was Rs.40.7 Cr as compared to Rs.52.1 Cr for FY 11. Total provision cover stood at 341% as at March 31, 2012 in line with the conservative provisioning norms followed by your Bank.

Key Ratios             :: FY 2012   ::   FY 2011

Return on Equity    :: 23.1% :: 21.1%

Return on Annual Average Assets:: 1.5%::1.5%

Basic Earnings Per Share :: 27.9 ::21.1

Diluted Earnings Per Share :: 27.1::20.3

Book value (Rs): 132.5 ::109.3

Non Interest Income to Net Revenues:: 34.7%::33.3%

Cost to Income:: 37.7%::36.3%

Gross NPA Ratio :: 0.22%::0.23%

Net NPA Ratio :: 0.05%::0.03%

SHAREHOLDERS’ FUNDS & CAPITAL MANAGEMENT

Yes Bank’s shareholder funds were Rs.4,676.6 Cr as at March 31, 2012 as compared to Rs.3,794.1 Cr as at March 31, 2011. The Book Value per share increased from Rs.109.3 as at March 31, 2011 to Rs.132.5 as at March 31, 2012. Capital Funds increased from Rs.7,119.3 Cr as at March 31, 2011 to Rs.9,326.1 Cr as at March 31, 2012.

The Bank had a capital adequacy ratio of 17.9% (as per Basel II) as at the end of FY 12. As per Basel II, Tier I capital ratio was 9.9% and the Tier II capital ratio was 8.0% as at March 31, 2012.

SWOT ANALYSIS

Strengths

capital adequacy ratio :- well above minimum requirements .

RoA :- at or above 1.5% over last 4 years; RoE :- at or above 20% over last 4 years.

Best asset quality among private sector banks.

Cost to income ratios to 36%-38% (far below the industry average Cost to income ratio of approx 45%).

One of the largest recruiters from B-schools in India.

Weaknesses

Still a very small player in banking space.

Suffers from low market share as its network of branches (~360) is still relatively smaller. It has accelerated & significantly increased from 150 branches as at March 31, 2010 to 356 as at March 31, 2012.

Being a new Bank, brand awareness among retail customers is lower than its peers. Improving very Fast.

Opportunities

Indian economic growth slipping sharply ; nevertheless India remains the second fastest growing major economy after China. India continues to present a significant opportunity to develop domestic infrastructure. In the next Five Year Plan period (2012-17), over USD 1 trillion of investments would be required in infrastructure sector for India to achieve double digit growth on a sustainable basis. Yes Bank has specialized skills in infra financing field and continues to be a leading advisor and syndications Bank in this space.

Indian banking continues to experience demographic tailwinds.

Large middle class with increasing incomes and banking needs along with a huge unbanked population below the age of 25 offers an enormous retail opportunity for banks in India.

Smaller towns and rural India still provide huge untapped potential for expansion. There are significant opportunities in the small and medium enterprise space. Ability to use technology to profitably deliver banking solutions to masses is an exciting opportunity. Yes Bank has been ranked by Financial Times among the top 600 banks in the world, and with Moody's credit rating of Baa3, at par with India's Sovereign rating, both these events help make the Bank's international foray, a logical next step.

The Bank's entry into new product/segments viz. retail assets offers significant potential to build on its expanding custom base. 

Threats

Tight monetary policy by RBI to tame inflation could dampen corporate credit offtake. Overall business could also be impacted due to reduction in asset quality and rise in NPAs due to the impact on corporate  margins. RBI has acknowledged increased upside risks to inflation owing to the recent surge in crude oil prices, fiscal slippage and the rupee depreciation. Amidst a slowing domestic activity, the extent of rate cut by the Reserve Bank of India in 2012-13 is likely to remain measured.

Changes in RBI regulations requiring banks to set up a higher number of rural branches could result in lower profitability for banks. Also, RBI awarding additional licenses could potentially result in increasing competition in the banking industry. 

Expansion may lead to increase in costs and overall reduction in operating profit accompanied by a decrease in quality of assets with exposure to retail in the future. Yes Bank could also face intense competition from allied firms in financial services (e.g. Broking /investment banking, etc.) who compete for human capital.

OUTLOOK

Outlook for FY13 is expected to show mild improvement. Robust private consumption is likely to underpin overall growth momentum. Investments, after having contracted for two consecutive quarters in Q2 and Q3 FY12, are expected to see a mild reversal (albeit in second half of 2012-13), as monetary easing begins and some action on policy front gains momentum. However, high global crude prices have increased the downside risk for growth. As a result we expect overall GDP growth to stay around 7.0-7.5% in FY13.

COMMENTS :- Looking at the above Excerpts from the Annual Report for FY 2012, YES BANK appears to continue in the FAST LANE in FY 13 too. Latest Indication after Dr.MMS has taken over as FM is that the negative sentiment is getting REVERSED quickly. If RBI also starts reducing Rates – Banking sector in general, and Yes Bank, in particular must perform excellently in FY 13 & onwards.

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