Financials

Financials — What the Numbers Say

Yes Bank is mid-cycle in one of the longest bank turnarounds in modern Indian banking history. From a near-fatal ₹16,433 Cr loss in FY2020 — triggered by a corporate-credit blow-up and the RBI-led reconstruction — the bank has rebuilt deposits to a record ₹3,18,969 Cr, dragged gross NPAs from 16.8% down to 1.3%, and produced a four-year string of growing profits. FY26 net profit grew 45% to ₹3,476 Cr, but at ₹3.18 lakh-Cr of total assets that is a Return on Assets of just 0.8% and a Return on Equity of 7.0% — roughly half of what HDFC, ICICI, or Kotak earn on their balance sheet. The share trades at ~1.37x book on a 7% RoE — the market is paying for the SMBC strategic stake and the next leg of the recovery, not for current profitability. The single metric that matters next is Net Interest Margin — management's stated path to a 3.25–3.50% NIM (from 2.6% today) is what closes the RoE gap to peers.

1. Financials in One Page

Quick glossary for the unfamiliar reader:

• Net Interest Margin (NIM) — the spread between what a bank earns on assets (mostly loans) and what it pays on liabilities (mostly deposits), divided by average earning assets. Higher is better. Indian private-bank benchmarks: 3.5–4.5%. Yes Bank: 2.6%.
• Return on Equity (RoE) — the most-used profitability metric for banks. Net profit ÷ average shareholders' equity. Healthy private-bank RoE: 13–18%. Yes Bank: 7.0%.
• Gross / Net NPA — bad loans as a % of advances, before and after provisioning. Lower is better. Yes Bank now at 1.3% / 0.2% — in line with the best private banks.
• CET-1 (Common Equity Tier-1) — the highest-quality capital cushion a bank must hold under Basel III rules. Regulatory floor is roughly 8% for Indian banks; Yes Bank's 13.8% is comfortable.
• CASA Ratio — share of cheap, sticky current and savings account deposits in total deposits. Higher = lower cost of funds. Yes Bank: 35.1% (vs. Kotak 43%, ICICI 39%).
• Price / Book — share price ÷ book value per share. The single best valuation anchor for banks because earnings power is tied directly to equity.

2. Revenue, Margins, and Earnings Power

For a bank, "revenue" is interest income on loans/investments plus non-interest income (fees, treasury gains, foreign-exchange commission). "Earnings power" is most cleanly captured by Net Interest Income (NII) — what the bank actually keeps from spread — and how much of that survives operating costs and credit costs to reach net profit.

Annual revenue, NII and net profit — full 11-year arc

The chart tells the full story of Yes Bank in one image: a 5-year compounder until FY2018, a credit-quality collapse in FY2019–FY2020 that wiped four years of profit and then some, a forced reset in FY2021, and a slow, grinding climb back. Topline revenue in FY26 (₹30,208 Cr TTM) is still below FY19's peak (₹29,624 Cr) seven years later — because the bank had to shrink its loan book in 2020–21 and is only now exceeding pre-crisis size. NII has finally surpassed its FY2019 peak (₹9,758 Cr vs. ₹9,813 Cr) — barely. Profit is one-third of FY18.

Where the operating leverage is — Cost-to-Income and NIM trajectory

The Cost-to-Income ratio (the % of net income consumed by operating costs) has improved by ~460 bps in just one year — from 71.3% to 66.7% — because deposit growth outpaced cost growth. Operating costs grew only 4.6% in FY26 against deposit growth of 12.1%. NIM has expanded from 2.2% to 2.6% over four years on lower cost of deposits and reduction in the costly PSL-shortfall deposits (mandatory Priority Sector Lending placements held at sub-market rates with RIDF — a structural drag on Yes Bank's margin that legacy peers don't carry to the same degree).

Recent quarterly trajectory — the inflection is real

Quarterly profit has not gone in a straight line — there's lumpiness from treasury and tax — but Q4FY26's ₹1,068 Cr (44.7% YoY growth) is the strongest single quarter since FY18 and confirms the trajectory is real. NIM hit 2.7% in Q4FY26, the highest in the post-reconstruction era.

Bottom line on earnings power: Yes Bank is not a fundamentally high-margin bank yet. NIM at 2.6% is ~100 bps below HDFC, ICICI, and Kotak. Management's published target of 3.25–3.50% NIM over 2–3 years is the entire bull thesis. Every 25 bps of NIM expansion on the current balance sheet adds roughly ₹1,000 Cr of pre-tax profit — enough to materially close the RoE gap.

3. Cash Flow and Earnings Quality

Critical framing: Cash flow for a bank is not the same lens as for an industrial. Operating cash flow for banks is dominated by changes in loans, deposits, and trading inventory — none of which are "discretionary" the way working capital is for a manufacturer. Free cash flow is not a meaningful concept for a bank — banks consume cash to grow their loan book and that consumption is the business, not a problem. So the right earnings-quality test for a bank is whether provisions are conservative, whether non-interest income is durable, and whether operating profit before provisions is consistent.

Net profit vs. pre-provision operating profit — the high-quality earnings line

This chart matters more than any other in the section. Pre-Provision Operating Profit (PPOP) is what the bank earns before it sets aside money for bad loans — it's the cleanest measure of underlying franchise economics. PPOP has nearly tripled from ₹2,106 Cr (FY22) to ₹5,506 Cr (FY26), a 27% CAGR. Net profit has tracked PPOP higher as provisions normalized — provisions fell from ₹1,736 Cr (FY22) to ₹912 Cr (FY26). The earnings recovery is real, not a one-time provision release.

Non-interest income mix — fee strength vs. trading sugar

CFO and FCF for a bank swing wildly with deposit and loan flows — note the ₹-25,816 Cr CFO in FY23 (the bank was net-funding loan growth from new deposits, classified as funding flow). These numbers are not informative about earnings quality. Watch the net profit line and PPOP instead.

Earnings quality verdict

FY26 non-interest income grew 15.4% YoY to ₹6,759 Cr — driven by fees, not trading. Provisions fell 16% on improving asset quality. Tax rate normalized to ~24%. Earnings quality is improving but the absolute return is still mediocre. A 0.8% RoA is roughly half of what an Indian private bank should target (1.5–1.8%). Until NIM expands meaningfully, profit growth will come from cost discipline and credit-cost normalization — both already partially captured in FY26.

4. Balance Sheet and Financial Resilience

For a bank the balance sheet is the business. Resilience comes from three pillars: capital adequacy, asset quality, and funding mix.

Deposits, advances, and CASA — the funding engine

Deposits crossed the ₹3 lakh-Cr milestone in Q4FY26, growing 12.1% YoY against advances growth of 11.1% — a healthy "credit-to-deposit" ratio of 85.7% (vs. peer norm 80–90%). More importantly, CASA deposits crossed ₹1 lakh-Cr, lifting the CASA ratio from 30.8% to 35.1% in three years. CASA is the cheapest funding source — every percentage-point rise in CASA shaves cost of deposits and expands NIM.

Capital adequacy — strong cushion, not stretched

CET-1 at 13.8% is comfortably above the ~8% regulatory floor. The bank does not need to raise equity from public markets to fund growth — and the SMBC strategic stake (~₹17,000+ Cr at-the-money, completed Sep 2025) further strengthened the capital base. Risk-Weighted Assets to Total Assets dropped from 73.9% (Q3FY26) to 69.7% (Q4FY26) — meaning each new ₹100 of assets requires less capital, freeing balance-sheet capacity.

Asset quality — the single biggest turnaround story

This is the cleanest "the trade has worked" chart in the book. GNPA went from 16.8% in FY20 — a near-failed-bank level — to 1.3% in FY26, which is now better than ICICI (1.53%) and Kotak (1.42%). NNPA at 0.2% is among the lowest in Indian private banking. The Provision Coverage Ratio (PCR) sits at 89.6% — meaning even on remaining NPAs the bank has already booked ~90% of the loss. The credit-quality risk is largely behind the bank.

Liquidity and PSL drag

Metric	Q4FY25	Q4FY26	Read
Liquidity Coverage Ratio	125.0%	119.0%	Comfortable; regulatory floor 100%
PSL-shortfall deposits	~₹37,000 Cr	₹27,931 Cr	Down 24.5% YoY — direct NIM tailwind
Borrowings	—	down 9.4% YoY	Less expensive market-funded debt

The PSL-shortfall deposits represent the bank's penalty for failing to meet Priority Sector Lending norms in past years — these are placed with RIDF at sub-market rates and structurally compress NIM. Management has reduced this by 24.5% in one year and guides another ₹6,500–9,000 Cr reduction by March 2027. This is the most under-appreciated NIM tailwind.

Resilience verdict

The balance sheet is the strongest it has been in a decade. The risk that brought the bank to its knees in 2020 — corporate-credit concentration with weak provisioning — is structurally addressed: corporate book is now smaller and granular, retail share has grown, PCR is at 89.6%, and capital is high. The remaining balance-sheet opportunity (not risk) is unwinding the PSL drag and continuing CASA accretion.

5. Returns, Reinvestment, and Capital Allocation

Return on Equity — still the missing piece

RoE is the single number that captures Yes Bank's investment case. Pre-crisis, the franchise generated 18–21% RoE — best-in-class. The 2020 collapse took RoE to -68%. Five years of repair has rebuilt to 7.0% FY26 (Q4FY26 annualized at 8.4%). To re-rate to peer book multiples (1.8–2.5x), Yes Bank needs RoE in the 12–15% range. The 5–8 percentage points gap is the entire equity story.

Dilution — the cost of survival

The 2020 reconstruction expanded the share count roughly 6x in one year — from ~250 Cr to ~501 Cr shares — through emergency equity infusions from SBI and a syndicate of banks. Subsequent capital raises (Carlyle + Advent in 2022, SMBC in 2025) added further dilution. A holder of 100 Yes Bank shares pre-FY20 owns roughly 8% of the franchise they did at peak. This is the single biggest negative the bull case has to live with: even if the franchise fully recovers to its FY18 ROE, per-share earnings are structurally smaller forever.

Capital allocation today

No dividend, no buybacks — and that's appropriate. The bank still needs to absorb growth, reduce PSL exposure, and re-rate RoE before returning capital. Until RoE exceeds the bank's cost of equity (~12–13% for an Indian bank), retaining capital and reinvesting is the value-creating choice — but it leaves shareholders waiting for the per-share value to compound through book-value accretion rather than yield.

Book value per share — the slow compound

Book value per share has grown from ₹13.4 to ₹16.3 — about 5% per year, in line with RoE × (1 − payout ratio). This will accelerate if and when RoE doubles. The simplest way to model Yes Bank's per-share future: project NIM expansion → RoE → BVPS compounding × an exit P/B multiple.

6. Segment and Unit Economics

Segment-level data is not separately disclosed in the staged dataset — the bank reports four reportable segments (Treasury, Corporate/Wholesale, Retail, Other Banking) in its annual report, but Q-on-Q presentation data is grouped at the franchise level.

What we do know from the Q4FY26 presentation:

The growth pattern is the opposite of what most Indian private banks show. Corporate is growing fastest (19.7%) and retail slowest (4.7%) — because Yes Bank has been deliberately rebuilding the corporate franchise after radically shrinking it post-2020. Retail disbursement growth (~41% YoY) is strong, but the back-book lag means retail advances grew only 4.7%. Expect retail growth to accelerate over FY27 as disbursement runs through to outstanding balances.

Segment economics implication: corporate lending is lower-margin but higher-throughput. The shift in mix toward corporate is consistent with the recent NIM trajectory: improving but not yet at peer level. The longer-term NIM thesis depends on the retail share of the book rising — which is what management's CASA push and branch additions enable.

7. Valuation and Market Expectations

Price-to-Book — the only multiple that matters

Yes Bank trades at 1.37x book with the price at ₹22.30 against book value per share of ₹16.30. That looks superficially cheap until you look at the RoE: at 7% RoE, the implied cost of equity solved from P/B and RoE suggests the market is paying for a future RoE closer to 11–12%, not 7%.

The peer-anchored fair P/B map

The line through the peer set goes roughly: P/B ≈ 0.13 × RoE + 0.6. Plugging in Yes Bank's 7% RoE gives a fair P/B of about 1.5x — actually slightly above where the stock trades. So on a strict peer-implied regression, the stock is fairly priced for its current RoE. The premium implicit in the price is small, and the valuation is justified by current returns.

The bull/bear question is therefore not about today's P/B — it is about whether RoE moves up.

Bear / Base / Bull P/B implied by RoE scenarios

Current price ₹22.30 sits between Base and Bull on this map. The market is essentially pricing a successful walk from 7% RoE to ~10% within 2–3 years. That is in line with management's stated NIM path of 3.25–3.50% over 2–3 years (which would translate to ~11–13% RoE at current leverage).

Sell-side consensus

Broker target prices in early-2026 cluster between ₹17 (Emkay, Sell) and ₹24 (ICICI Securities, Hold). LSEG median target: ₹19.45 from 10 analysts — below current price of ₹22.30. The street is incrementally cautious. The buy-side bid (FII to 46% on SMBC accumulation) is more bullish than the sell-side recommendation set.

What "expensive" or "cheap" really means

Yes Bank is not cheap on current cash flows or current returns. It is cheap only in the scenario where NIM gets to 3.0%+ within 2 years. Investors are buying a turnaround completion, not a steady-state earnings yield.

8. Peer Financial Comparison

The peer-comparison read:

• HDFC, ICICI, Kotak form the high-quality cohort: RoE 11–16%, NIM 4–5%, GNPA ≤1.5%, P/B 2.0–2.5×. They are the "destination" Yes Bank's turnaround narrative aims at — and they trade at the multiples that justify owning them today.
• Axis is the closest large-bank analog with similar scale aspirations; 13% RoE at 1.8× P/B.
• IndusInd has stumbled (RoE collapsed to 1.4% on a recent credit episode) — its 1.08× P/B is what Yes Bank's multiple could look like if the recovery stalls.
• IDFC First is the closest turnaround analog by character — DFI legacy, similar rebuild path, 3.8% RoE and 1.25× P/B. Yes Bank is ahead of IDFC First on the recovery curve, which is reflected in the slightly higher multiple.
• Yes Bank's premium over IndusInd and IDFC First is justified by superior asset quality (GNPA 1.3% vs. unclear/higher peers) and the SMBC strategic-stake validation.
• Yes Bank's discount to HDFC/ICICI/Kotak is justified by the 600–900 bps RoE gap.

No obvious mispricing relative to peers. The valuation is consistent with where the bank is in its rehabilitation.

9. What to Watch in the Financials

Verdict

The financials confirm that the balance sheet is rebuilt: NPAs at decade lows, capital strong, deposits at record, asset-quality risk largely behind the bank. The financials contradict any case that this is already a high-quality compounder — RoA at 0.8%, RoE at 7%, NIM at 2.6% are all roughly half of peer benchmarks, and the share count is 7–8× higher than pre-crisis, so per-share earnings power is structurally lower. The valuation correctly prices a partially-completed turnaround.

The first financial metric to watch is Net Interest Margin. Every 25 bps of NIM expansion is worth roughly ₹1,000 Cr of pre-tax profit on the current balance sheet, which translates to roughly 2 percentage points of RoE. The walk from 2.6% to management's 3.25–3.50% target over 2–3 years is the entire equity thesis — and the next four quarterly NIM prints are where the thesis is proven or rejected.