YES Bank Q2 preview: Revenue may remain muted; recovery from existing bad loans key monitorable

Private sector lender YES Bank will announce its September quarter numbers on October 23 wherein the company is expected to report pressure on the revenue front.

Other than the numbers, management commentary on the progress of below investment grade and recovery from existing bad loans would be the key monitorable.

Kotak Institutional Equities expects YES Bank's outstanding loans to decline about 30 percent year-on-year (YoY) but the key positive would be the recovery in deposit mobilisation.

Kotak expects net interest margin (NIM) to be unchanged quarter-on-quarter (QoQ) at 3 percent. Revenue pressure may remain high also due to weak fee income (sharp decline) and decline in net interest income (NII) (about 12 percent YoY), Kotak said.

Kotak expects YES Bank's asset quality ratios to see further deterioration (lumpy corporate exposure).

Due to the COVID-19, the bank continues to face the risk of asset quality deterioration due to its corporate heavy loan book.

The recovery from stressed assets could prove to be difficult. Proposal to migrate stressed assets to a separate entity in a JV could be beneficial for the bank," said brokerage firm HDFC Securities.

"The near-term challenge for investors in YES Bank would be the inability to forecast near-term slippages, the direction of credit costs and movement of NPLs," HDFC Securities added.

HDFC Securities also highlighted that a higher-than-expected deterioration in the asset quality could resulting in the erosion of YES Bank's Tier-I capital. Fresh formation of bad loans that would keep provision high and return ratio compressed for a longer time.