Yes Bank FPO Analysis (May apply)

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Review By Chittorgarh.com Team on July 11, 2020

Company Background

• Yes Bank Limited (YBL), a new generation private sector bank in India incorporated as a public limited company in November 2003, obtained the banking license from RBI in 2004 to commence banking operations in India.
• YBL is a full-service commercial bank specialising in merchant banking, digital banking, brokerage business, asset management and investment banking.
• YBL strongly believes in human capital investment to develop the young and dynamic pool as the key to long term sustainable success. As of 31^st March 2020, the number of bank employees stands at 22,793.
• On 13th March 2020, RBI notified 'Yes Bank Limited Reconstruction Scheme 2020' to protect the interest of the depositors and to secure the management of the banking company which was the need of the hour considering the rapidly deteriorating financial position of the bank.
• The reconstruction scheme was supported by big investors like State Bank of India ('SBI'), Housing Development Finance Corporation Limited, ICICI Bank Limited, Axis Bank Limited, Kotak Mahindra Bank Limited, The Federal Bank Limited, Bandhan Bank Limited and IDFC First Bank Limited investing an amount aggregating to Rs 10,000 crores in the Bank at a price of Rs 10 per Equity Share of the Bank.
• Following the reconstruction scheme, the board was reconstituted with 8 eminent professionals with vast experience within the banking industry who focuses on formulating new strategic objectives to aim to augment deposit base and liquidity buffers, optimize operating costs, build stronger governance and underwriting framework and focus on stressed assets resolution over the next six to twelve months.
• As per the recent SEBI letter and listing regulations, YBL is now professionally managed and is a 'listed entity with no promoters' and all the erstwhile promoters and persons belonging to the promoter group have been re-classified as public shareholders.

Overview of Indian Banking Industry

• The Indian banking industry plays a very important role in the economic development of the country. It is one of the dominant pillars of the financial system which can lead to success or failure of an economy.
• Retail banking has experienced rapid growth due to consumer credit becoming cheaper and more widely available with 56.6% growth of bank credit coming from retail banking for fiscal 2020.
• The commercial banking has slowed down as compared to Fiscal 2019 due to sluggish growth across sectors due to ongoing situations.

Company Strengths

• YBL has a simplified organization structure with a unique combination of public-private ownership models within the Indian financial services space. The strong relationship with the shareholders has strengthened Bank's strategic position. According to the construction scheme 2020, YBL is backed by an experienced leadership team that seeks to ensure that the bank strictly adheres to regulatory and governance norms.
• YBL has a strong technology backbone and unparalleled digital capabilities and operates based on two themes of 'Run the Bank' and 'Build the bank'. YBL has emerged as a market leader in the payment segment by ranking as top Remitter Bank in the Intermediate Payment Service, highest P2M transactions in the Unified Payments Interface segment and held approximately 29.5% market share based on transaction volume in the Aadhaar Enabled Payment System segment as at March 31, 2020.
• YBL has a well-established banking platform with a strong focus on retail and SME advances. The use of digital capabilities helps the company lower the cost of retail-led acquisition and the use of a robust risk management system for SME business provides a potential for growth of the said business.
• YBL offers a diversified range of products and banking solutions to its customers that generate interest and non-interest income. The combination of diverse product offerings and a relationship-driven approach has helped YBL generate sustainable revenue.
• YBL has a strong governance framework consisting of an independent risk management function covering enterprise risk management, credit risk, market risk, and operational risk that contributes to preserving the bank's asset quality among other risk objectives. The bank has set up a separate 34-member team with a specialized skill set for stressed asset resolution.
• YBL uses a knowledge-based approach to banking to provide their customers with well-informed, customized, and risk-mitigated solutions which differentiate the bank from their competitors and helps strengthens the customer relationships. This allows the banks to cross-sell a full range of products and services to existing customers.
• YBL has its presence across India covering all 28 states and eight union territories with one representative office in Abu Dhabi as of March 31, 2020. It has a network of 1,135 branches and 1,423 ATMs spread geographically across the country.
• YBL provides award-winning quality of service with a customer-centric approach. YBL has been recognized in India as well as globally with various awards and recognition viz. 'Most Customer-Centric Bank' in the medium-size bank's category and runner up for 'Best Technology Bank of the Year' and 'Best use of Data & Analytics' in the medium size banks category at the Indian Banks' Association Banking Technology Awards 2017-2018, and 'Best Bank in India for SME' at the Asiamoney best bank awards: India, in 2019.

Company strategies

• YBL has adopted a liability-led acquisition strategy in metro and urban areas and an asset-led operating model in semi-urban and rural areas. To achieve this the bank will identify current account corporate customers for preferred cash flow lending and working capital lending, and offer them a range of customized products.
• YBL intends to invest in the transaction banking group and increase the customer base in Corporate Banking, Medium Enterprises Banking, SME Banking and Retail Banking business segments through a focused customer relationship management to ensure sustainable and diversified revenue generation.
• YBL will continue to focus on effective cost optimization and target to save a minimum of 5% of fixed cost in the fiscal year 2021.
• YBL intends to enhance and rebuild the brand value by engaging in various activities such as advertising across print media, radio, television and the internet, domestically and abroad and also take initiatives to focus on strengthening corporate governance.
• YBL would take advantage of its strong technological leadership and leverage its digital capabilities to enhance its business.
• YBL focuses on strengthening the risk management framework to detect early warning signs to take appropriate proactive action.

*** These BRLMs will be involved only in the marketing of the offer.

Objects of Issue

• The issue comprises of the Fresh Issue.
• The net proceeds from the issue will be utilized for ensuring adequate capital to support growth and expansion, including enhancing the bank's solvency and capital adequacy ratio.

Financial performance

• The company's financials for Fiscal 2020 see a negative growth compared to earlier years. This was mainly on account of a sudden rise in NPA due to the slippage of investments in bonds of two stressed corporate groups.
• The CET1 ratio and the Tier 1 capital ratio for the Bank as of 31 March 2020 stood at 6.3%.and 6.5 % as compared to the minimum requirements of 7.375% and 8.875% respectively. This requires the bank to augment its capital base in the year 2020-21.
• There has been a significant drop in the assets, deposits, CASA deposits, advances by (9.16)%, (27.96)%, (38.09)%, (8.22)% from Fiscal 2018 to 2020 respectively.
• The EPS has reduced year-on-year and can be considered as Not Applicable for the Fiscal 2020 due to loss suffered in Fiscal 2020.
• The Bank has focused on pro-actively recognizing bad loans as it continues to account for loan slippages in fiscal year 2020 and has decided to increase its coverage ratio on its NPA loans beyond

the RBI requirements with a provision coverage ratio on advances at 73.77%.

Note: The figures reflect rupees in million.

BRLM Track records

The merchant bankers associated with the issue have handled 25 issues in the past 3 financial years, out of which 9 issues closed below the issue price on the listing date.

Competition with Listed Industry Peers:

YBL's revenue is in line with its peers, however, the PE, EPS, NAV, RoNW have been impacted due to the high slippage of the loans.

*NA reflects the figures have no meaning as P/E cannot be negative.