YES Bank: Version 2 at work

The bank hangs on to 2.8% NIMs, but Casa continues to languish at 10%.

Yes Bank has shown impressive growth on all parameters in the year ending March 31, 2011. In the second phase of its growth, titled Version 2, the bank is committed to growing at 30 per cent compounded annual growth rate (CAGR) for the next five years. This will take the bank’s balance sheet to Rs 150,000 crore from the present Rs 59,007 crore. While analysts like the bank’s spectacular growth and steady margins, they seem concerned over its current account savings account (Casa) ratio, which has been languishing around the 10 per cent-mark for the last seven quarters.

The bank has already put its growth strategy in place, if numbers for FY11 are any indication. The bank has grown its balance sheet to Rs 59,007 crore in FY11, clocking a quarter-on-quarter growth of 12.9 per cent and an annual growth of 62 per cent. Total deposits have grown by 71.4 per cent to Rs 45,938.9 crore from Rs 26,798.6 crore last year. On the other hand, total advances grew 54.8 per cent to Rs 34,363.6 crore, from Rs 22,193.1 crore last year. However, analysts don’t see this 55 per cent growth in loan book to continue. Aalok Shah, analyst at India Infoline, says: “We don’t see the loan book growing at 55 per cent. We expect a growth of 35 per cent in FY12 and 30 per cent in FY13.”

While analysts were expecting most of this, what has taken many by surprise is the net interest margins (NIMs) of 2.8 per cent. Despite interest rates going up, the bank has maintained its NIMs. In the third quarter, the management had said NIMs would go up to 3 per cent in the first quarter of FY12. However, this seems rather tough in the current environment as interest rates are likely to remain hard for the next few quarters. Till the time cost of funds come down, the bank will find it difficult to pass on further rate increase to its consumers.

However, one thing the bank seems to be struggling with is the low cost Casa deposits. After five years, the bank has decided to expand its retail footprint so that it could garner low-cost deposits, but for the last six quarters the bank’s Casa ratio is in the region of 10 per cent. And savings accounts constitute only 17 per cent of the bank’s overall Casa. Given that the bank is not really planning to go after the retail customers, Casa growth will remain a concern say analysts.