After years of turmoil, signs are emerging that Yes Bank may finally be on a sustainable path to recovery. The biggest headline recently is that Japan’s Sumitomo Mitsui Banking Corporation (SMBC) is set to acquire a significant 20% stake in Yes Bank. This move not only brings in a strong global financial player but could also signal a change in leadership and direction for the once-distressed Indian lender.
Here’s a deep dive into what’s happening at Yes Bank and what lies ahead for the business.
Years of Decline
Over the last five years, Yes Bank has seen a sharp erosion in shareholder wealth. The stock has plummeted by nearly 90%, reflecting its deep troubles that included soaring NPAs, weakening profitability, and massive loss of market share.
Market Share Losses
As Yes Bank wrestled with mounting bad loans, it began to lose ground in both the lending and deposit markets. Once seen as a high-growth private bank, it struggled to maintain its franchise, especially during the peak of its crisis period.
Return on Equity (ROE) Hit
A natural consequence of weakening business performance and high provisioning was a steep drop in ROE. Investors who once saw Yes Bank as a high-return opportunity lost confidence as returns eroded significantly.
Signs of Stability in Core Business
Despite the difficult past, the bank is showing early signs of recovery in its operations:
Total loan growth stands at 8.1%
Retail loan growth is at 8%
Corporate loan growth is slightly better at 11%
The bank appears to be shifting its strategy toward increasing its focus on retail lending – a segment that provides better risk-adjusted returns and lower concentration risks.
Deposit Growth Back on Track
Deposit mobilization, a major concern in the past, has now stabilized. The bank recorded an 8% growth in deposits, indicating returning customer confidence and improving franchise stability. A strong and growing deposit base is essential for sustainable lending and bank performance.
Capital Adequacy
Yes Bank’s CET-1 (Common Equity Tier 1) ratio stands at 13.5%. While this reflects decent capitalization, it is still considered on the lower side when viewed against the backdrop of potential future growth. This makes a fresh capital infusion a likely event in the near to medium term.
Non-Performing Assets (NPAs)
After two years of intense clean-up, Yes Bank’s NPA picture has become clearer:
Fresh slippages stood at INR 1,224 crore – manageable given the size of the book
Provision coverage ratio has improved significantly
The bank claims that the NPA clean-up is now largely complete
No Immediate Red Flags
The management has not flagged any sectoral stress currently. Segments like Retail, SME, and credit cards are showing stability. Retail credit costs, which had risen earlier, have plateaued in Q2/Q3 and improved in Q4.
However, the management remains cautiously optimistic, citing the need to stay alert in view of global macro uncertainties. Still, no early warning signals have been detected yet.
Loan Book Outlook
The total loan book size is INR 2.46 lakh crore. The bank has guided for 12–15% loan growth going forward, centered on its strategy of “profitable growth.”
SMBC’s Entry: A Game Changer?
On May 9, Yes Bank confirmed that SMBC would acquire a 20% stake from existing stakeholders, including SBI and other Indian banks that had rescued the bank under the 2020 reconstruction plan. The deal is worth around Rs 13,480 crore.
SMBC is also expected to infuse additional fresh capital, potentially acquiring another 6–7% stake. If the total holding crosses the regulatory threshold, SMBC may need to make an open offer, potentially raising its shareholding up to 51%.
This would represent a dramatic shift in control, with the Japanese banking giant becoming the new promoter of Yes Bank. For the Indian private banking space, such a move would be transformational.
Valuation Picture
Yes Bank currently trades at 1.6x price-to-book (P/B), indicating a moderate valuation. With SMBC’s involvement and a possible promoter change, this could attract fresh investor interest and re-rating opportunities
Disclaimer
This article is for informational purposes only and should not be considered as investment advice. Please consult a certified financial advisor before making any investment decisions.
