Yes Bank Q1 FY26 earnings call

Yes Bank delivered a strong Q1 FY26, reporting a Net Profit of INR 801 crores, marking a 59.4% year-on-year and 8.5% sequential increase. The bank's Return on Assets (ROA) improved significantly by 30 basis points year-on-year to 0.8%, and 10 basis points sequentially. Pre-Provisioning Operating Profit (PPOP) also saw robust growth, up 53.4% year-on-year to INR 1,358 crores, with PPOP to Average Total Asset improving by 40 basis points to 1.3%. Net Interest Income (NII) grew 5.7% year-on-year to INR 2,371 crores, and Net Interest Margin (NIM) expanded to 2.5% from 2.4% in Q1 last year.

The bank maintained a healthy asset quality profile, with Gross Non-Performing Assets (NPA) remaining stable at 1.6% and Net NPA at 0.3%, consistent with the previous quarter. The Provision Coverage Ratio (PCR) further improved to 80.2% from 79.7% in Q4 FY25 and 67.6% in Q1 last year. However, fresh gross slippages increased to INR 1,458 crores compared to INR 1,223 crores in the previous quarter, primarily originating from isolated pockets within Microfinance, Small Enterprise Banking, and Mortgage segments. Recoveries and upgrades during the quarter amounted to INR 1,170 crores, contributing to a credit cost of INR 284 crores (0.3% on an annualized basis), partly supported by INR 338 crores recovered from fully provided Security Receipts.

Advances grew by 5% year-on-year, with Commercial Banking and Corporate and Institutional Banking segments growing by 19% and 3% respectively. Retail Banking advances remained flat year-on-year due to a calibrated approach, though Micro Enterprise Banking advances within retail grew 11.2%. Total Deposits increased by 4%, aligning with advances growth. Retail and branch-led deposits demonstrated strong growth of 20% year-on-year, reaching INR 1.69 lakh crores. The Retail and Branch-led CASA ratio improved by 200 basis points year-on-year to 38.2%, reflecting a strengthening deposit franchise. The bank's CD ratio stood at 87.5%.

The bank's capital position remained robust, with the Common Equity Tier 1 (CET1) ratio improving to 14% and the Total Capital Adequacy Ratio (CRAR) at 16.2%. This was supported by muted loan growth and easing regulatory requirements. Yes Bank received multiple credit rating upgrades in June and July, including Moody's upgrading its long-term foreign and local currency ratings to Ba2 with a stable outlook and its baseline credit assessment to BA3 from B1. ICRA and CARE also upgraded the bank's Tier 2 bonds and infrastructure bonds to AA- with a stable outlook, signaling improved market confidence.

Yes Bank emphasized its commitment to digital innovation, receiving a special mention award at the Digital Payment Award 2025 for fraud prevention and customer service. The bank's digital super apps, IRIS by YES Bank and IRIS Biz, along with its open market UPI application YES PAY, are seeing good response. Management indicated ongoing efforts to implement new technologies, including Artificial Intelligence and Generative AI, to drive business outcomes, improve risk management, and enhance operational efficiency, with future updates to be shared in investor presentations.

While NIMs improved year-on-year to 2.5%, the bank anticipates near-term pressure^📎 in Q2 and Q3 due to the asset repricing impact of recent repo rate cuts. Management expects the impact to be most significant in September, with absorption by year-end. Mitigation strategies include adjusting deposit rates, faster repricing of corporate deposits, and benefits from CRR and RIDF reductions. The bank's RIDF and other PSL shortfall related deposits decreased by 16% (INR 7,000 crores net drop), and borrowings were also down 16%. The Cost to Income ratio improved to 67.1% from 74.3% last year, with operating expenses (excluding PSLC) up only 5.7% Y-o-Y.

Yes Bank reiterated its target for 12-15% credit growth, focusing on profitable expansion, with capital and deposit growth not being constraints. The bank aims for a 1% ROA by exit FY26 and an average of 1.5% by FY30, supported by NIM expansion, reduced cost of deposits, improved non-interest income, and lower credit costs. Regarding the proposed share sale, it is a secondary transaction where the buyer will acquire a 20% stake from existing shareholders like SBI. RBI approval for this transaction is expected by September.