Stock market
The Reserve Bank of India (RBI) has cleared the amendment of YES Bank’s Articles of Association. After this, Japanese, the legendary financial organization Sumitomo Mitsui Banking Corporation (SMBC) has got the right to appoint a representative in the board of YES Bank. SMBC has already signed a share purchase agreement to buy a stake in the bank on 9 May. This change is considered to be a long -term positive signal for the bank, but market analyst and brokerage firm MK Global (Emkay Global) does not look as excited about this entire incident.
Fear of drastic fall in stock
Emkay Global has maintained the rating of its SELL on YES Bank shares and has fixed its target price ₹ 17. This target indicates a decline of about 19.5% from the current market price. According to EMKAY, the bank’s share price is higher than its high valuation and weak profitability. Brokerage says that the YES Bank is currently trading on the 1.2 times adjustable book value (ABV) of FY 2026-27’s estimated earnings (ABV), which cannot be said to be appropriate for its current profitability.
Weak profitability became a big challenge
EMKAY report states that the bank’s core profitability is still weak. YES Bank’s Pre-Provision Operating Profit (PPOP) is only 0.9% of its total assets. The main reason for this is – the bank’s slow growth, low margin and high operating costs. Especially the pressure of ₹ 37,000 crore RIDF pool (which is about 15% of the total loan) is affecting the bank’s net interest margin (NIM). This has a big impact on the profitability of YES Bank.
SMBC entry can get new direction
However EMKAY considers the entry in the SMBC board and the possible leadership in future as a strategic opportunity. According to the report, SMBC can also play an important role in the appointment of bank’s MD and CEO. The leadership suggested by the SMBC after the current MD and CEO Prashant Kumar is expected to have better governance and strategic clarity. EMKAY also reminded that SBI’s entry in 2020 played an important role in stabilizing the deposit base of YES Bank. The participation of SMBC can also give a new direction to the bank on fronts like capital access, improvement in management, governance and portfolio clean-up.
1% ROA target by 2027
YES Bank has set a target of 1% ROA (Return on Assets) by FY 2027, which is a slightly better than 0.8%, but for this the bank will have to overcome many challenges. EMKAY has also said in its report that to achieve this goal it is necessary that the bank does not have any big asset quality shock. Brokerage House has recently increased the estimate of YES Bank’s earnings by 7-15%. There are two important reasons behind this
- Expect more income from Securitisation Receipts (SRS).
- Cost reduction, as the bank is now slowly moving towards branch-based loan sourcing.
Disclaimer: This article is only for information and should not be considered as an investment advice in any way. TV9 India suggests its readers and spectators to consult their financial advisors before taking any decision related to money.