Ye s B a n k

Liabilities are its assets

BR November 28, 2019
T
AV E H E AR
SERIES

Liability boat buoyed by capital float

Kunal Shah Prakhar Agarwal Anisha Khandelwal

+91 22 4040 7579 +91 22 6620 3076 +91 22 6623 3362 Edelweiss Securities Limited
kunal.shah@edelweissfin.com prakhar.agarwal@edelweissfin.com anisha.khandelwal@edelweissfin.com
 YES Bank
\

EDELWEISS 4D RATINGS Executive Summary

Absolute Rating BUY
Rating Relative to Sector Outperform To say the past year has been tumultuous for YES Bank
Risk Rating Relative to Sector Medium (Yes) is an understatement. As asset exposure-skeletons
Sector Relative to Market Overweight
tumbled out of its closet, the assets themselves turned into
a liability. But there’s more than meets the eye. In the
MARKET DATA (R: YESB.BO, B: YES IN)
wake of the new management taking over and rewriting
(Click here for the bank’s DNA focusing on a retail-focused granular
CMP : INR 68 video clip)
Target Price : INR 101 business model, the strengthening liability franchise is
52-week range (INR) : 286 / 29 emerging as the bank’s biggest asset. To be specific, we now see
Share in issue (mn) : 2,550.5 undercurrents of a favourable investment risk-reward due to four factors. i)
M cap (INR bn/USD mn) : 174 / 11,398 Grossly undervalued liability franchise: Robust customer additions and
Avg. Daily Vol.BSE/NSE(‘000) : 135,194.8 healthy transaction flows, in spite of the challenging environment, bear
testimony to the franchise’s strength. ii) Capital: Yes, it is an issue, but
SHARE HOLDING PATTERN (%) strategic players would make a beeline for such an undervalued asset (0.8x
Current Q1FY20 Q4FY19 FY21E book) due to the paucity of a scalable banking franchise. iii) Asset
Promoters * 13.1 19.8 19.8 quality: This problem is acute, but a large part of its stress pool has been
MF's, FI's & BK’s 19.3 17.0 21.0 identified. To be sure, we are building in a much higher credit cost that
FII's 26.5 33.7 40.3 implies limited downside risk. iv) Professional management: A new team,
Others 41.1 29.5 18.9 evolving organisational DNA, revamped strategies and renewed focus
* Promoters pledged shares : 1.0
(% of share in issue) would help Yes Bank evolve into a granular and stable business franchise.

PRICE PERFORMANCE (%) We also believe current challenges will take a toll on near-term earnings.
EW Banks and However, one cannot turn a blind eye to its underappreciated franchise—
Stock Nifty Financial m-cap/deposit of <10%, lowest among peers. Moreover, a beaten-down
Services Index
0.8x FY21E book renders risk-reward favourable. Once the bank surmounts
1 month 51.0 7.0 11.0 capital and credit quality challenges, the revamped model would emerge as
3 months (22.7) 7.9 9.5 granular, sustainable and less volatile. On balance, we are upgrading Yes
12 months (68.1) 12.4 20.0 Bank to ‘BUY’ with a TP of INR101 (>45% upside) based on the residual
income methodology, and are including it in our Braveheart Series.

Underlying franchise strength…

Amid all the noise about Yes Bank’s asset quality and wholesale deposit base, one must
not overlook the progress it has made in scaling up retail franchise that is difficult to
replicate or build from the scratch reflected in: i) ratcheting up saving deposits to ~19% by
H1FY20 from 5% in FY12 with 3mn saving accounts; ii) retail TD jumping to >29% in
Kunal Shah H1FY20 from 13% in FY15; and iii) tracking robust transactional flows, evident from over
+91 22 4040 7579
1bn UPI transactions (~40% share, highest among peers). Armed with a new focused
kunal.shah@edelweissfin.com
management, network expansion, data analytics and a branch-centric model, Yes Bank
Prakhar Agarwal has the wherewithal to build on its retail franchise and expand beyond wholesale deposits.
+91 22 6620 3076
prakhar.agarwal@edelweissfin.com
…would attract capital
Anisha Khandelwal
+91 22 6623 3362 Up-front stress recognition makes capital infusion the need of the hour. Our Braveheart
anisha.khandelwal@edelweissfin.com
call is contingent on Yes Bank’s ability to raise capital. We believe the probability of
capital infusion is high given: i) sufficient interest—as strategic players would make a
beeline for such an undervalued asset due to the paucity of a scalable banking franchise;
ii) the bank is insulating itself from promoters’ interference; iii) emerging clarity on stress
November 28, 2019

Edelweiss Research is also available on www.edelresearch.com,

Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. Edelweiss Securities Limited
Banking and Financial Services
pool; and iv) the RBI nominee on the board, which provides comfort about a successful
transition. Though this entails the concomitant risk of potentially higher dilution, at this
juncture there is no flexibility. Even post-capital infusion, the risk appetite is likely to
remain weak and the bank may not be viewed as a growth story over the medium term.

Asset quality: The problem is acute, but largely factored in

Last 12 months have been tough for Yes Bank—evident from the sharp deterioration in its
book quality (GNPL spiked to 7.4% in H2FY20 from 2.1% in Q3FY19; elevated stress pool
with ~10% being in BB and below). We do believe it’s difficult to take a definitive call on
the quality of assets given persistent downgrades to BB and below, higher exposure to
NBFCs and real estate, and an uncertain macroeconomic environment. Hence, we prefer
to err on the side of caution, and estimate GNPLs would be >13% by FY21 and an average
credit cost of >400bps over FY20–21 (versus the bank’s guidance of 250bps/150bps for
FY20/FY21). The bright spot is the turning asset cycle, which may abate the delinquency
risk (from extreme negativity) and would render upside risk to our numbers.

Management’s initiatives hinge on evolving granular business model

Yes Bank’s evolution over the previous decade was essentially driven by preference for
scale over risk. However, course correction is underway with: i) a new leadership (along
with revamped management team) in place; ii) renewed focus on strengthening retail and
a culture of calibrated risks; and iii) much-improved transparency, governance and
compliance. That said, given the new management’s track record has been mixed so far –
guidance miss and volatility in communication – we will wait it out. However, what
bolsters our confidence is the addition of employees during the currently turbulent phase
and the initiatives for building a more granular and sustainable business model.

Near-term earnings to take a hit

The consolidation phase is bound to take a toll on Yes Bank’s near-term earnings given: i)
management is calibrating risk and recreating a focused asset base which will impact
margins; ii) limited flexibility on deposit cost as its endeavour is to stabilize/scale the
deposit base; iii) dimming focus on upfront fee-heavy business; iv) higher credit cost of
>4% for FY20/21E; and v) investments in retail franchise (adding people, branches). That
said, FY22 would mark the much-needed transition as normalisation plays through.

Key risks to our call

One of the key risks to our ‘BUY’ call is the bank’s ability to raise capital as any upset
thereof will restrict its ability to clean up the balance sheet and limit growth options.
Besides, any panic flight of deposits (a la early October) would undermine its franchise
value. Regulatory intervention is also a key risk given the bank’s legacy issues.

Outlook and valuation: Here to stay; Upgrade to ‘BUY’

We perceive Yes Bank as a high risk-return potential candidate as our base-case holds out
the bank is here to stay, braving the known and unknown challenges and a temporary lull
in earnings. At its current 0.8x FY21E P/B, the stock factors in multiple challenges and a
clear under-valuation of its liability franchise. The m-cap-to-deposit at sub-10% – lowest
among peers – starkly reflects the under-appreciated franchise value. Once it navigates
the challenges, the revamped business model would emerge stronger, sustainable and
less volatile. Hence, we are upgrading the stock to ‘BUY/SO’ from ‘HOLD/SP’ with a TP of
INR101 (>45% potential upside) and including it in our Braveheart Series.

2 Edelweiss Securities Limited

 YES Bank

A hard look: The malaise and the remedy

1) Underlying franchise strength – a remedy not to be ignored
Amid all the noise about Yes Bank’s asset quality and some dependence on wholesale
deposits, one must not ignore the commendable progress it has made in scaling up retail
franchise that is difficult to replicate or build from the scratch.reflected in:
 Saving deposits rising to 19% in H1FY20 from ~5% in FY12 with 3mn saving accounts.
Even during current tough phase, it is adding 180k SA customers per quarter. Besides, its
SA per branch stands at INR350mn vis-à-vis private banks’ average of INR400mn.
 Retail deposit proportion jumping to >29% in H1FY20 from 13% in FY15.
 Transactional nature of its accounts is reflected in over 1bn UPI transactions (~40%
market share, highest among peers), reflecting strong flows and customer connect.
 New management is consciously trying to run down bulk deposits, which is likely to
sustain in FY20 as well and have a bearing on overall deposit growth (5% dip in FY20).
Chart 1: Adding employees even during the turbulent phase… Chart 2: …with focus on customer acquisition
30,000 1,200 4.0 Added 270k
Added 3k + liability
24,000 employees in 960 customers in
3.2
H1FY20 H1FY20 despite 2.7
headwinds 2.4
(Nos. in mn)

18,000 720 2.4

(Nos.)

(Nos.)

12,000 480 1.6

6,000 240 0.8 0.6

0 0 0.0
FY09 FY14 FY18 FY19 H1FY20 FY14 FY19 H1FY20
Employees Branches (RHS) No. of liab. accounts
Chart 3: Commendable progress in scaling up retail… Chart 4: …amongst handful of banks with such SA/branch
75.0 675

60.0 540

405
(INR mn)

45.0 26 29
26
(%)

20 270
30.0
21 19
18 135
15.0 9

12 10 13 12 0
0.0
HDFC
Axis

ICICI

IIB

Yes
Kotak

FY13 FY16 FY19 H1FY20

CA SA RTD FY09 FY14 H1FY20
Source: Company
*Note: number of debit cards is taken as proxy for number of liability customers

3 Edelweiss Securities Limited

 Banking and Financial Services
Chart 5: Sustained focus on building granularity and renewed focus on retailisation will further bolster franchise
30.0 100.0
Top 20 depositors
25.0 80.0

20.0 60.0
(%)

(%)
15.0 40.0 80.0
60.3
10.0 47.9
20.0

5.0 0.0
FY14 FY15 FY18 FY19 FY15 H1FY20 FY25E
Axis HDFC ICICI Indusind Kotak Yes CASA + RTD

Chart 6: Sheer transaction flows (40% UPI share), testimony to franchise strength

1,200
UPI transactions 50.0
40
960 40.0
34
30
720 31 30.0
(INR mn)

(%)
480 20.0
22

240 10.0

0 0.0
Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20
Volume Market share

Chart 7: Lowest m-cap/deposit indicates under-appreciated franchise

100.0

80.0

60.0
(%)

40.0

20.0

0.0
Federal

BOB
HDFC

ICICI
Indusind

Axis
CUBK

Yes
DCB

SBI
Kotak

PNB
RBL

Mcap/Deposits (%)
Source: Company, Bloomberg, Edelweiss research

4 Edelweiss Securities Limited

 YES Bank

2) How do you address potential asset quality issues?

Following a sharp deterioration in the portfolio profile (with GNPLs spiking to 7.4% in H2FY20
from 2.1% in Q3FY19 at a slippage run rate of >10%, not to mention elevated existing stress
pool with 10% in BB and below and 20% in BBB), investors have held a steadfast view on the
bank’s book, turning a blind eye to the undercurrents. Moreover, guidance revision by
management over the past two quarters has failed to inspire investor confidence.

We do expect challenges to persist in the near term given the concentrated exposure taken by
the bank earlier and the general macroeconomic challenges.

Recognition of NPLs is likely to be elevated for the next few quarters with our base case GNPL
expectation of >13% by FY21. Our estimates are based on realistic assumptions (detailed
below) factoring in a 50% slippage from stress pool and a normalised slippages run rate outside
of stress pool at 1%.

After assigning loss given default (LGD) of 60% and coverage on existing NPLs of 60%, our base
case average credit cost estimate is 400bps-plus over FY20-21 (versus management guidance
of 250bps/150bps). We do, however, believe that, after this recognition, a large part of the
asset quality stress will have been factored in and normalisation would play through in FY22
(granularity in business model would help cushion major surprises, if any, and better coverage
of >60% will help too).

However, the moot point is, whether more negative asset quality surprises could dent
investor confidence. We believe some quarterly variations are likely based on the timing of
recognition. However, on an aggregate, over 400bps of credit cost for the next two years
should adequately factor in visible stress. Besides the asset cycle is turning with expectations of
diminishing delinquency risk (from extreme negativity). Thus, the likelihood of a surprise to our
numbers is more on the upside than on the downside.

Chart 8: Last few quarters have been tumultuous for the bank reflected in higher slippages and sharp rise in headlines GNPLs...
13.0 4.0 10.0 105.0

10.1
10.4 3.2 8.0 7.4 90.0

7.8 2.4 6.0 75.0

6.2
(%)

(%)

(%)

(%)
5.2 3.9 1.6 4.0 3.2 60.0
1.2 2.7
2.6 0.6 0.8 0.7 0.8 1.5 1.3
2.0 45.0
0.8
0.2 0.3 0.4
0.0 0.0 0.0 30.0
FY13

FY14

FY15

FY16

FY17

FY18

FY19

H1FY20

FY13

FY14

FY15

FY16

FY17

FY18

FY19

H1FY20

Slippages Credit cost (calc., RHS) GNPLs Coverage (RHS)

Source: Company

5 Edelweiss Securities Limited

 Banking and Financial Services
Chart 9: … despite this, the higher level of BB and below book renders further uncertainty on asset quality
100.0 2 2 2 350 17.5
3 7 9 10
21 22 22 19 15
80.0 17 21 14.0
280 14.0

60.0
210 10.5

(INR bn)
(%)

(%)
40.0
140 7.0
20.0 4.3
70 2.6 3.5
0.0 1.2

Q1FY20

Q2FY20
FY15

FY16

FY17

FY18

FY19
0 0.0
Axis ICICI Indusind Yes
AAA AA A BBB BB and below BB and below book % of loan book (RHS)
Source: Company, Edelweiss research

Table 1: We expect slippages to be elevated emanating from BB and below list...

Overall Additional
(INR mn) PD (%) LGD (%)
(INRmn) provisioning
GNPLs 171,344 102,806 29,034
Restructured book 2,210 50 60 663 332
Security Receipts 16,410 50 60 4,923 1,641
Corporate exposure
BBB & Below Exposure
-Overall Current Exposure 314,000
-Net additions 83,176
-O/S exposure 397,176
--Fundbased (67%) 266,108 50 60 79,832 78,768
--Non-Fund based (6%) 23,831 50 60 7,149 7,149
--Investment (28%) 107,237 32,171 17,171
AAA 581,366 - - - -
AA 329,545 - - - -
A 1,231,129 2 60 11,080 2,512
BBB 652,871 8 60 31,338 28,726
Retail/Others 855,362 3 25 6,415 2,994
Total Provisions 168,327
Source: Company, Edelweiss research

6 Edelweiss Securities Limited

 YES Bank

Chart 10: …leading to GNPLs rising to >13% by FY21 & average credit cost of >400bps over FY20-21 before normalising in FY22
20.0 110.0 5.0 4.6

16.0 95.0 4.0 3.8

13.4
11.3 11.9
12.0 80.0 3.0
(%)

(%)
2.3

(%)
7.4
8.0 65.0
2.0

4.0 3.2 50.0 0.9 0.9

1.0 0.6 0.6 0.7 0.7 0.8
0.0 35.0
0.0
H1FY20

FY20E

FY21E

FY22E
FY19

FY20E

FY21E

FY22E
FY17
FY13

FY14

FY15

FY16

FY18

FY19
GNPLs Coverage (RHS) Credit cost (calc.)
Source: Company, Edelweiss research

3) Deposits: Is the risk of deposit flight high in challenging times?

The past 12 months have been the toughest for Yes Bank due to adverse and unanticipated
developments with the promoter forced to step down (not only control and management, but
ownership as well), revamp of top management team, significant deterioration in book quality,
weak earnings, a series of credit rating downgrades and low confidence among investors,
depositors, customers, regulators, rating agencies, employees, etc.

These adverse developments have triggered deposit flight over the past one year—coming off
>5% since December 2018. In fact, in the first week of October 2019, with defaults by co-
operative banks and the sentiment aggravated by industry-wide internet banking issue, Yes
Bank suffered the maximum run-down of deposits. However, management immediately set on
course correction initiatives and stabilised the situation. We believe its current deposit levels
are similar to the level at September-end.

So, can we rule out the possibility of flight of the bank’s deposits in the future in the face of any
adverse developments given the challenging macroeconomy and capital contingency?
Certainly not. however, we believe the probability of that happening is relatively low as the
situation is improving all over and confidence is building up.

4) How critical is capital?

Our Braveheart ‘BUY’ is contingent on Yes Bank’s ability to shore up its capital base (it has
binding offers for USD1.2bn and other offers totalling USD1.5bn). The likelihood of capital
coming through is high given: i) sufficient interest—Strategic players will make a beeline for
such an undervalued asset due to paucity of a scalable banking franchise; ii) the bank is
delineating itself from any sort of promoter interference; iii) improving visibility in stress pool
with aggressive recognition and improved disclosure on rating profile; and iv) the RBI nominee
being on the banks’ board provides comfort of a successful transition.

The concomitant risk with capital infusion is potentially higher dilution. However, at this
juncture, we believe there is no flexibility on capital raise. We estimate up-front capital
infusion of USD1.2bn in FY20 would dilute the book value by >15%. Delay in capital infusion

7 Edelweiss Securities Limited

 Banking and Financial Services
will heighten vulnerability to shocks and also limit the bank’s ability for up-front recognition
and flexibility to grow. Management stance of up-front recognition and “be safe than sorry”
makes capital infusion the need of the hour as the entire story will unravel if capital doesn’t
come through.

Table 2: Capital raising will be dilutive, but is imminent

Offer 1 Offer 2
Capital USD1.2bn USD1.5bn
Type Binding Non-binding
Investros One strategic Consortium (5-6)
CET-1 impact 270bps 330bps
Dilution (%) >45% >60%
Source: Company, Edelweiss research

Chart 11: Transitioned from a promoter-driven bank to a professionally managed player

Q3FY19 Q2FY20
Prom &
Others Prom & Others Prom Grp.
6% Prom Grp. 12% 13%
Resident
20%
Ind.
17% Insurance
9%

Insurance Resident
MFs 11% Ind.
30% FIIs
10% FIIs
27%
36%

MFs
9%
Source: Company

Table 3: Revamped board and RBI appointed director lend confidence on better risk management and will help attract capital
FY18 Current
Rana Kapoor MD & CEO Ravneet Gill MD & CEO
Brahm Dutt Independent Director Brahm Dutt Non-Executive Chairman
Pratima Sheorey Additional Director Pratima Sheorey Independent Director
Ashok Chawla Non-Executive Independent Part-Time Chairman Subhash Chander Kalia Non-Executive Non-Independent Director
Ajai Kumar Non-Executive Non-Independent Director R Gandhi Independent Director
Debjani Ghosh Independent Director Anil Jaggia Additional Director
Mukesh Sabharwal Independent Director Maheswar Sahu Additional Director
Saurabh Srivastava Independent Director Ravinder Kumar Khanna Additional Director
Vasant V Gujarathi Independent Director Shagun Kapur Gogia Additional Director
Rentala Chandrashekhar Additional Director Thai Salas Vijayan Additional Director
Subhash Chander Kalia Additional Director Uttam Prakash Agarwal Additional Director
Source: Company

8 Edelweiss Securities Limited

 YES Bank

5) Will balance sheet growth take a backseat?

Even if Yes Bank attracts adequate capital and successfully transitions from subsistence phase
to evolution phase, the risk appetite would still be weak and risk aversion would persist. It will
not be able to position itself as a growth bank, at least in the near to medium term. The
balance sheet reduction and the ongoing rejig in favour of retail, MSME and cash flow-based
lending will take at least two years, in our view.

Chart 12: Balance sheet consolidation will continues for next two years with focus on retail segment
2,700 65.0 100.0

2,300 50.0 80.0 35.3 38.1

50.0
1,900 35.0
(INR bn)

60.0

(%)

(%)
1,500 20.0
40.0
64.7 61.9
1,100 5.0
50.0
20.0
700 (10.0)
FY20E

FY21E

FY22E
FY16

FY17

FY18

FY19

0.0
FY15 H1FY20 FY25E
Loan book Growth (RHS) Corporate Banking Retail & Business Banking
Source: Company, Edelweiss research

Chart 13: With focus on retail/granular deposits the proportion of CASA plus retail-TD will rise further
3,000 48.0 100.0

2,400 37.0 80.0

1,800 26.0
(INR bn)

60.0
(%)

(%)

1,200 15.0
40.0 80.0
600 4.0 60.3
47.9
20.0
0 (7.0)
FY20E

FY21E

FY22E
FY16

FY17

FY18

FY19

0.0
FY15 H2FY20 FY25E
Deposits Growth (RHS) CASA + RTD
Source: Company, Edelweiss research

9 Edelweiss Securities Limited

 Banking and Financial Services
Fig. 1: While challenging in near term the business model will evolve much simpler, stronger and sustainable

Source: Company, Edelweiss research

6) What does this mean for earnings profile?

The consolidation and transition phase is bound to take a toll on the bank’s near-term
earnings given: 1) its calibrating risk, recreating a focused asset base and building granularity,
which would have a bearing on margins; 2) limited flexibility on deposit cost as the bank’s
endeavour will be to stabilise deposit base; 3) dimming focus on up-front fee-heavy
business will drag fee income; 4) higher credit cost estimate of >400bps for FY20/21 amid
challenging environment; and 5) investment in retail franchise (adding people, branches) will
lead to weak earnings. That said, FY22 will mark the much-needed step towards
normalisation playing through.

Table 4: Limited flexibility on deposit rates …. Chart 14: … will keep NIMs under pressure…
Mar-16 Mar-17 Mar-18 Mar-19 Sep-19 4.0
Axis 7.5 7.1 6.5 7.3 7.0
HDFC 7.0 7.3 7.0
3.6
ICICI 7.3 6.9 6.5 7.1 7.0
Indusind 7.4 7.2 0.0 8.0 7.5 3.2 3.2
3.2 3.1
Kotak 7.5 6.9 7.0 7.3 6.8 3.0 3.0 3.0
(%)

Yes 7.5 7.2 6.7 7.3 7.3 2.8

2.8

2.4

2.0
FY16 FY17 FY18 FY19 FY20E FY21E FY22E
NIMs
Source: Company, Edelweiss research

10 Edelweiss Securities Limited

 YES Bank

Chart 15: …this, along with fee income realignment (no upfronting) and higher credit cost …
3.0 6.0

4.6
2.4 4.8
1.9 1.9 3.8
1.7
1.8 3.6
1.5
1.4
(%)

(%)
1.3
2.3
1.2 1.1 2.4

1.2 0.8 0.9 0.9

0.6 0.7

0.0 0.0
FY16 FY17 FY18 FY19 FY20E FY21E FY22E FY16 FY17 FY18 FY19 FY20E FY21E FY22E
Fee/asset Credit cost
Source: Company, Edelweiss research

Table 5: ..will take toll on near-term earnings; we are much more conservative than Street
Edelweiss Consensus Diff (%)
FY20E FY21E FY22E FY20E FY21E FY22E FY21E FY22E
PAT (INR mn) (37,190) (9,995) 41,257 (10,623) 11,536 29,217 NA 41.2
EPS (INR) (9.8) (2.6) 10.9 (3.5) 4.2 9.6 NA 14.0
BV (INR) 87.7 85.0 93.6 101.6 102.9 107.3 (17.3) (12.8)
RoA (%) (1.1) (0.3) 1.2 (0.2) 0.3 0.7 NA 0.5
RoE (%) (12.4) (3.1) 12.2 (3.4) 3.5 8.5 NA 3.7
Source: Bloomberg, Edelweiss research

Yes Bank is going through a turbulent phase and this is bound to reflect in a temporary lull in
its earnings. Besides, uncertainties pertaining to capital infusion and asset quality stress
loom. Then what makes Yes Bank an investible stock?

Our key argument is the bank is “here to stay” despite the known and unknown challenges.
1) Capital chase: We believe strategic capital will chase the bank as there are hardly any
similarly scalable banking franchises available in the country today. Moreover, current
challenges for NBFC/PSU banking space are godsend and would relatively improve Yes
Bank’s positioning and franchise (since only 6–10 banks are inadequate to handle the
evolving needs of India’s financial system).

2) Valuation: While 0.8x P/B factors in the challenges, the value of its liability franchise, in
our view, is way higher as evident from its incremental depositor base and best-in-class
flow of transactions in the face of current turbulence. As and when the bank moves out
of the subsistence phase, we believe it would evolve into a much stronger, simpler and
sustainable business model and likely to command a significant value in the profit pool
on the back of its immense strategic franchise.

11 Edelweiss Securities Limited

 Banking and Financial Services
Key concerns
We do not expect any major deviations in asset quality/credit cost from our estimates.
Consequently, risks to our call hinge on: a) capital infusion; b) deposit stabilisation; and c)
period of the subsistence phase.

The new management team is just eight months old with a modest track record. Does this
pose a risk to our belief in its successful execution? No…we believe volatility in
management’s guidance and its modest track record are not attributable entirely to its
inherent quality, but more to unprecedented times and the deteriorating macroeconomic
environment. We believe the new structures, team build-up and the bank’s new strategy are
credible, and, with time, stability will start to play through.

Valuation: Gordon growth model yields target price of INR101

While near-to-medium term earnings are likely to be subdued (we expect losses to
percolate into FY20/FY21), the stock has the potential to generate a stable-state RoE of 15%.

Table 6: Gordon Growth Model assumptions

Assumptions for Cost of Equity (%) Growth assumptions Years Rate (%)
Rf 6.5 Explicit forecast period 2
ERP 5.0 Time to reach HG period 7
Beta 1.5 High economic return period & ROE 7 17.5
Cost of Equity 13.9 Transitory period 10
Time to reach stable period & RoE 26 15.0
Terminal growth rate 4.0

Table 7: Intrinsic value calculation

Intrinsic value (INR mn)
Book Value 331,157
Sum of Disounted RI 40,370
PV of Continuing value 11,700
Equity Value 383,227
No. of shares O/S 3,777
Intrinsic value/share 101
Source: Edelweiss research

12 Edelweiss Securities Limited

 YES Bank

Company Description
Yes Bank is a private Indian bank promoted by Rana Kapoor with financial support from
Rabobank Nederland and global institutional private equity investors AIF Capital and
ChrysCapital. It has market cap of INR169bn and loan book of ~INR2.3tn. At the end of
Q2FY20, the bank had a branch network of 1,123 and a CASA ratio of >30%. Corporate
lending accounts for 62% of advances and commercial/retail 38%

Investment Theme
We perceive Yes Bank as a high risk-return potential candidate as our base-case holds out
the bank is here to stay, braving the known and unknown challenges and a temporary lull in
earnings. At its current 0.8x FY21E P/B, the stock factors in multiple challenges and a clear
under-valuation of its liability franchise (considering incremental depositor base and strong
transactions flow). The m-cap-to-deposit at sub-10% – lowest among peers – starkly reflects
the under-appreciated franchise value. Once it navigates capital and asset quality challenges,
the revamped business model would emerge stronger, sustainable and less volatile. Hence,
we are upgrading the stock to ‘BUY/SO’ from ‘HOLD/SP’ with a TP of INR101 (>45% potential
upside) based on the residual income methodology and including it in our Braveheart Series.

Key Risks
One of the key risks to our ‘BUY’ call is the bank’s ability to raise capital as any upset thereof
will restrict its ability to clean up the balance sheet and limit growth options. Besides, any
panic flight of deposits (a la early October) would undermine its franchise value. Regulatory
intervention is also a key risk given the bank’s legacy issues.

13 Edelweiss Securities Limited

 Banking and Financial Services

Financial Statements
Key Assumptions Income statement (INR mn)
Year to March FY19 FY20E FY21E FY22E Year to March FY19 FY20E FY21E FY22E
Macro Interest income 296,248 285,735 266,601 281,409
GDP(Y-o-Y %) 6.8 5.7 6.2 6.8 Interest expended 198,157 190,166 169,651 178,538
Inflation (Avg) 3.4 4.0 4.0 4.5 Net interest income 98,090 95,569 96,950 102,872
Repo rate (exit rate) 6.3 4.5 4.3 4.3 Non interest income 45,902 44,861 51,332 60,338
USD/INR (Avg) 70.0 71.0 71.0 70.0 - Fee & forex income 41,641 33,257 39,258 47,610
Sector - Misc. income 3,260 2,604 3,074 3,728
Credit growth 14.0 11.0 13.0 15.0 - Investment profits 1,000 9,000 9,000 9,000
Deposit growth 13.0 12.0 14.0 15.0 Net revenue 143,992 140,430 148,282 163,210
CRR 4.0 4.0 4.0 4.0 Operating expense 62,643 68,826 77,103 87,840
SLR 19.5 18.5 18.0 18.0 - Employee exp 24,698 27,764 30,395 35,024
G-sec yield 7.0 7.1 7.1 7.1 - Other opex 37,945 41,062 46,708 52,816
Company Preprovision profit 81,349 71,604 71,179 75,369
Op. metric assump. (%) Provisions 57,776 111,737 84,505 20,359
Yield on advances 10.3 9.5 9.2 9.2 Loan loss provisions 46,590 111,737 84,505 20,359
Yield on investments 7.7 7.2 7.0 6.8 Investment depreciation 4,857 - - -
Yield on asset 9.1 8.4 8.2 8.2 Other provisions 6,329 - - -
Cost of funds 6.2 5.8 5.5 5.5 Profit Before Tax 23,574 (40,133) (13,326) 55,010
Net interest margins 3.0 2.8 3.0 3.0 Less: Provision for Tax 6,371 (2,943) (3,332) 13,752
Cost of deposits 6.1 5.5 5.6 5.9 Profit After Tax 17,203 (37,190) (9,995) 41,257
Cost of borrowings 7.5 8.2 8.7 8.6 Reported Profit 17,203 (37,190) (9,995) 41,257
Spread 2.9 2.6 2.7 2.7 Adj. Diluted EPS (INR) 7.4 (9.8) (2.6) 10.9
Tax rate (%) 27.0 7.3 25.0 25.0 Dividend per share (DPS) 2.0 - - 2.0
Balance sheet assumption (%) Dividend Payout Ratio(%) 31.1 - - 21.1
Credit growth 18.7 (7.0) 1.0 12.0
Deposit growth 13.4 (5.0) 2.0 13.0 Growth ratios (%)
SLR ratio 19.0 20.0 19.5 19.5 Year to March FY19 FY20E FY21E FY22E
Low-cost deposits 33.0 30.9 31.6 32.6 NII growth 26.8 (2.6) 1.4 6.1
Gross NPA ratio 3.2 11.3 13.4 11.9 Fees growth (4.7) (20.1) 18.0 21.3
Net NPA / Equity 16.7 38.3 40.1 36.7 Opex growth 20.2 9.9 12.0 13.9
Capital adequacy 16.5 18.0 17.7 17.6 PPOP growth 11.0 (22.1) (0.7) 6.7
Incremental slippage 3.9 9.3 4.6 2.0 PPP growth 5.0 (12.0) (0.6) 5.9
Provision coverage 43.1 50.9 60.0 60.0 Provisions growth 271.8 93.4 (24.4) (75.9)
Adjusted Profit (59.3) NA NA NA

Operating ratios
Year to March FY19 FY20E FY21E FY22E
Yield on advances 10.3 9.5 9.2 9.2
Yield on investments 7.7 7.2 7.0 6.8
Yield on assets 9.1 8.4 8.2 8.2
Cost of funds 6.2 5.8 5.5 5.5
Net interest margins 3.0 2.8 3.0 3.0
Cost of deposits 6.1 5.5 5.6 5.9
Cost of borrowings 7.5 8.2 8.7 8.6
Spread 2.9 2.6 2.7 2.7
Cost-income 43.5 49.0 52.0 53.8
Tax rate 27.0 7.3 25.0 25.0

14 Edelweiss Securities Limited

 YES Bank
Balance sheet (INR mn) RoE decomposition (%)
As on 31st March FY19 FY20E FY21E FY22E Year to March FY19 FY20E FY21E FY22E
Share capital 4,630 7,554 7,554 7,554 Net int. income/assets 3.0 2.8 3.0 3.0
Reserves & Surplus 264,412 323,603 313,608 346,145 Fees/Assets 1.4 1.1 1.3 1.5
Net worth 269,042 331,157 321,162 353,698 Invst. profits/Assets - 0.3 0.3 0.3
Sub bonds/pref cap 80,000 81,000 82,000 83,000 Net revenues/assets 4.4 4.1 4.6 4.8
Deposits 2,276,102 2,162,297 2,205,543 2,492,263 Operating expense/assets (1.9) (2.0) (2.4) (2.6)
Total Borrowings 1,004,241 531,090 382,381 402,722 Provisions/assets (1.8) (3.3) (2.6) (0.6)
Other liabilities 178,877 298,234 388,626 415,756 Taxes/assets (0.2) 0.1 0.1 (0.4)
Total liabilities 3,808,262 3,403,777 3,379,711 3,747,439 Total costs/assets (3.9) (5.2) (4.9) (3.6)
Loans 2,414,996 2,245,946 2,268,406 2,540,614 ROA 0.5 (1.1) (0.3) 1.2
Cash and Equivalents 268,895 175,374 159,390 169,749 Equity/assets 8.0 8.8 10.1 9.9
Gilts 623,265 538,677 504,645 564,522 ROAE (%) 6.5 (12.4) (3.1) 12.2
Others 271,955 288,586 307,321 328,545
Fixed assets 8,170 6,814 5,288 3,593 Valuation parameters
Other Assets 220,980 148,380 134,661 140,415 Year to March FY19 FY20E FY21E FY22E
Total assets 3,808,262 3,403,777 3,379,711 3,747,439 Adj. Diluted EPS (INR) 7.4 (9.8) (2.6) 10.9
Credit growth 18.7 (7.0) 1.0 12.0 Y-o-Y growth (%) (59.5) NA NA NA
Deposit growth 13.4 (5.0) 2.0 13.0 BV per share (INR) 116.2 87.7 85.0 93.6
EA growth 20.6 (9.2) (0.3) 11.2 Adj. BV per share (INR) 102.7 64.2 61.1 69.6
SLR ratio 19.0 20.0 19.5 19.5 Diluted P/E (x) 9.2 NA NA 6.2
C-D ratio 116.0 114.6 113.8 111.9 Price/ BV (x) 0.6 0.8 0.8 0.7
Low-cost deposits 33.0 30.9 31.6 32.6 Price/ Adj. BV (x) 0.7 1.1 1.1 1.0
Provision coverage 43.1 50.9 60.0 60.0 Dividend Yield (%) 2.9 0.0 0.0 2.9
Gross NPA ratio 3.2 11.3 13.4 11.9
Net NPA ratio 1.9 5.7 5.7 5.1
Incremental slippage 3.9 9.3 4.6 2.0
Net NPA / Equity 16.7 38.3 40.1 36.7
Capital adequacy 16.5 18.0 17.7 17.6
- Tier 1 11.3 13.4 13.1 13.0

Peer comparison valuation

Market cap Diluted P/E (X) Price/ Adj. BV (X) ROAE (%)
Name (USD mn) FY20E FY21E FY20E FY21E FY20E FY21E
Yes Bank 2,439 NA NA 1.1 1.1 (12.4) (3.1)
Axis Bank 29,746 26.3 14.4 2.6 2.2 10.4 15.5
DCB Bank 761 13.3 10.0 1.8 1.6 13.4 15.5
Federal Bank 2,440 9.8 7.9 1.3 1.1 12.6 14.0
HDFC Bank 98,062 26.1 20.2 4.2 3.6 16.6 18.7
ICICI Bank 45,790 18.1 15.7 2.7 2.3 12.2 16.8
IndusInd Bank 14,824 18.4 14.0 3.5 2.7 19.5 21.0
Kotak Mahindra Bank 43,308 24.5 28.7 3.5 3.1 15.0 15.7
Median - 21.3 14.2 3.0 2.5 13.0 15.6
AVERAGE - 18.2 10.6 2.9 2.5 10.9 14.3
Source: Edelweiss research

15 Edelweiss Securities Limited

 Banking and Financial Services

Additional Data
Directors Data
Ravneet Gill Managing Director & CEO Brahm Dutt Director
Subhash Kalia Director Uttam Agarwal Director
T.S. Vijayan Director Pratima Sheorey Director
Maheshwar Sahu Director Anil Jaggia Director
Ravindra Kumar Khanna Director Shagun Kapur Gogia Director
R Gandhi RBI Nominee Director

Auditors - B S R & Co. LLP

*as per last annual report

Holding - Top 10
Perc. Holding Perc. Holding
BlackRock 2.62 Vanguard Group 2.49
HDFC Asset Management Company 2.28 Societe Generale 1.86
Government Pension Fund - Global 1.81 SBI Funds Management 1.77
Dimensional Fund Advisors 1.67 WF Asian Smaller Company 1.63
Jwalamukhi Investment Holdings 1.62 BNP Paribas 1.58

Bulk Deals
Data Acquired / Seller B/S Qty Traded Price

No Data Available
*in last one year

Insider Trades
Reporting Data Acquired / Seller B/S Qty Traded
01 Jul 2019 Amit Kumar Sell 24000.00
28 Jun 2019 Amit Shah Sell 45000.00
24 Jun 2019 Rinki Dhingra Sell 40000.00
21 Jun 2019 Rajat Monga Sell 500000.00
21 Jun 2019 Ajit Chandgude Sell 40000.00
*in last one year

16 Edelweiss Securities Limited

 RATING & INTERPRETATION

Company Absolute Relative Relative Company Absolute Relative Relative

reco reco risk reco reco Risk

Aavas Financiers HOLD SP M Aditya Birla Capital BUY SO H

Axis Bank BUY SO M Bajaj Finserv REDUCE SU L
Bank of Baroda REDUCE SU M DCB Bank HOLD SP M
HDFC BUY SO L Federal Bank BUY SO L
ICICI Bank BUY SO L HDFC Bank BUY SO L
Indiabulls Housing Finance HOLD SU M IDFC FIRST BANK BUY SP L
Kotak Mahindra Bank BUY SP M IndusInd Bank BUY SO L
LIC Housing Finance BUY SO M L&T Finance Holdings HOLD SP M
Mahindra & Mahindra Financial Services BUY SP M Magma Fincorp BUY SP M
Max Financial Services BUY SO L Manappuram Finance HOLD SU H
Muthoot Finance BUY SO M Multi Commodity Exchange of India HOLD SP M
Punjab National Bank REDUCE SU M Power Finance Corporation BUY SP M
Repco Home Finance BUY SP M REC HOLD SP M
Shriram Transport Finance BUY SO M Shriram City Union Finance BUY SP M
State Bank of India BUY SO L South Indian Bank BUY SP M
Yes Bank HOLD SU M Union Bank Of India HOLD SU M

ABSOLUTE RATING
Ratings Expected absolute returns over 12 months

Buy More than 15%

Hold Between 15% and - 5%

Reduce Less than -5%

RELATIVE RETURNS RATING

Ratings Criteria
Sector Outperformer (SO) Stock return > 1.25 x Sector return

Sector Performer (SP) Stock return > 0.75 x Sector return

Stock return < 1.25 x Sector return

Sector Underperformer (SU) Stock return < 0.75 x Sector return

Sector return is market cap weighted average return for the coverage universe
within the sector

RELATIVE RISK RATING

Ratings Criteria

Low (L) Bottom 1/3rd percentile in the sector

Medium (M) Middle 1/3rd percentile in the sector

High (H) Top 1/3rd percentile in the sector

Risk ratings are based on Edelweiss risk model

SECTOR RATING
Ratings Criteria
Overweight (OW) Sector return > 1.25 x Nifty return

Equalweight (EW) Sector return > 0.75 x Nifty return

Sector return < 1.25 x Nifty return

Underweight (UW) Sector return < 0.75 x Nifty return

17 Edelweiss Securities Limited

 Banking and Financial Services

Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098.
Board: (91-22) 4009 4400, Email: research@edelweissfin.com

ADITYA
Digitally signed by ADITYA NARAIN
DN: c=IN, o=EDELWEISS SECURITIES LIMITED,
Aditya Narain ou=SERVICE,
2.5.4.20=3dc92af943d52d778c99d69c48a8e
0c89e548e5001b4f8141cf423fd58c07b02,
Head of Research
NARAIN
postalCode=400011, st=MAHARASHTRA,
serialNumber=e0576796072ad1a3266c2799
0f20bf0213f69235fc3f1bcd0fa1c30092792c2
aditya.narain@edelweissfin.com 0, cn=ADITYA NARAIN
Date: 2019.11.28 15:30:04 +05'30'

Coverage group(s) of stocks by primary analyst(s): Banking and Financial Services

Aavas Financiers, Aditya Birla Capital, AU Small Finance Bank Ltd, Axis Bank, Bajaj Finserv, Bank of Baroda, DCB Bank, Equitas Holdings, Federal Bank,
HDFC, HDFC Bank, HDFC Life Insurance Company Ltd, ICICI Bank, ICICI Lombard General Insurance Company Ltd, IDFC FIRST BANK, Indiabulls Housing
Finance, IndusInd Bank, ICICI Prudential Life Insurance Company Ltd, Kotak Mahindra Bank, LIC Housing Finance, L&T Finance Holdings, Max Financial
Services, Multi Commodity Exchange of India, Manappuram Finance, Magma Fincorp, Mahindra & Mahindra Financial Services, Muthoot Finance, Punjab
National Bank, Power Finance Corp, REC, Repco Home Finance, SBI Life Insurance Company Ltd, State Bank of India, Shriram City Union Finance, Shriram
Transport Finance, South Indian Bank, Union Bank Of India, Yes Bank
Recent Research

Date Company Title Price (INR) Recos

22-Nov-19 BFSI Err on the side of caution;

Result Review
14-Nov-19 REC (Coffee Stability setting in; stress 135 Hold
with CEO) resolution key for re-rating;
Visit Note
14-Nov-19 Power Steady quarter; resolutions 122 Buy
Finance hold key; Result Update
Corporation

Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe Rating Interpretation

Buy Hold Reduce Total Rating Expected to

Rating Distribution* 161 67 11 240 Buy appreciate more than 15% over a 12-month period
* 1stocks under review
Hold appreciate up to 15% over a 12-month period
> 50bn Between 10bn and 50 bn < 10bn
743
Reduce depreciate more than 5% over a 12-month period
Market Cap (INR) 156 62 11
594

One year price chart

446
(INR)

300
297
240

149 180
(INR)

- 120
Apr-14

Sep-14
Feb-14

Mar-14

Jun-14

Dec-14
Jul-14

Aug-14

Oct-14

Nov-14
May-14
Jan-14

60

0
Dec-18

Aug-19

Oct-19
Apr-19

May-19

Nov-19
Nov-18

Jan-19

Feb-19

Sep-19
Jun-19
Mar-19

Jul-19

Yes Bank

18 Edelweiss Securities Limited

 YES Bank
DISCLAIMER
Edelweiss Securities Limited (“ESL” or “Research Entity”) is regulated by the Securities and Exchange Board of India (“SEBI”) and is
licensed to carry on the business of broking, depository services and related activities. The business of ESL and its Associates (list
available on www.edelweissfin.com) are organized around five broad business groups – Credit including Housing and SME
Finance, Commodities, Financial Markets, Asset Management and Life Insurance.

This Report has been prepared by Edelweiss Securities Limited in the capacity of a Research Analyst having SEBI Registration
No.INH200000121 and distributed as per SEBI (Research Analysts) Regulations 2014. This report does not constitute an offer or
solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. Securities as
defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 includes Financial Instruments and Currency
Derivatives. The information contained herein is from publicly available data or other sources believed to be reliable. This report is
provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The
user assumes the entire risk of any use made of this information. Each recipient of this report should make such investigation as it
deems necessary to arrive at an independent evaluation of an investment in Securities referred to in this document (including the
merits and risks involved), and should consult his own advisors to determine the merits and risks of such investment. The
investment discussed or views expressed may not be suitable for all investors.

This information is strictly confidential and is being furnished to you solely for your information. This information should not be
reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in
part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or
resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use
would be contrary to law, regulation or which would subject ESL and associates / group companies to any registration or licensing
requirements within such jurisdiction. The distribution of this report in certain jurisdictions may be restricted by law, and persons
in whose possession this report comes, should observe, any such restrictions. The information given in this report is as of the date
of this report and there can be no assurance that future results or events will be consistent with this information. This information
is subject to change without any prior notice. ESL reserves the right to make modifications and alterations to this statement as
may be required from time to time. ESL or any of its associates / group companies shall not be in any way responsible for any loss
or damage that may arise to any person from any inadvertent error in the information contained in this report. ESL is committed
to providing independent and transparent recommendation to its clients. Neither ESL nor any of its associates, group companies,
directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential
including loss of revenue or lost profits that may arise from or in connection with the use of the information. Our proprietary
trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed
herein. Past performance is not necessarily a guide to future performance .The disclosures of interest statements incorporated in
this report are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in
the report. The information provided in these reports remains, unless otherwise stated, the copyright of ESL. All layout, design,
original artwork, concepts and other Intellectual Properties, remains the property and copyright of ESL and may not be used in
any form or for any purpose whatsoever by any party without the express written permission of the copyright holders.

ESL shall not be liable for any delay or any other interruption which may occur in presenting the data due to any reason including
network (Internet) reasons or snags in the system, break down of the system or any other equipment, server breakdown,
maintenance shutdown, breakdown of communication services or inability of the ESL to present the data. In no event shall ESL be
liable for any damages, including without limitation direct or indirect, special, incidental, or consequential damages, losses or
expenses arising in connection with the data presented by the ESL through this report.

We offer our research services to clients as well as our prospects. Though this report is disseminated to all the customers
simultaneously, not all customers may receive this report at the same time. We will not treat recipients as customers by virtue of
their receiving this report.

ESL and its associates, officer, directors, and employees, research analyst (including relatives) worldwide may: (a) from time to
time, have long or short positions in, and buy or sell the Securities, mentioned herein or (b) be engaged in any other transaction
involving such Securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the
subject company/company(ies) discussed herein or act as advisor or lender/borrower to such company(ies) or have other
potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of
publication of research report or at the time of public appearance. ESL may have proprietary long/short position in the above
mentioned scrip(s) and therefore should be considered as interested. The views provided herein are general in nature and do not
consider risk appetite or investment objective of any particular investor; readers are requested to take independent professional
advice before investing. This should not be construed as invitation or solicitation to do business with ESL.

19 Edelweiss Securities Limited

 Banking and Financial Services

ESL or its associates may have received compensation from the subject company in the past 12 months. ESL or its associates may
have managed or co-managed public offering of securities for the subject company in the past 12 months. ESL or its associates
may have received compensation for investment banking or merchant banking or brokerage services from the subject company in
the past 12 months. ESL or its associates may have received any compensation for products or services other than investment
banking or merchant banking or brokerage services from the subject company in the past 12 months. ESL or its associates have
not received any compensation or other benefits from the Subject Company or third party in connection with the research report.
Research analyst or his/her relative or ESL’s associates may have financial interest in the subject company. ESL and/or its Group
Companies, their Directors, affiliates and/or employees may have interests/ positions, financial or otherwise in the
Securities/Currencies and other investment products mentioned in this report. ESL, its associates, research analyst and his/her
relative may have other potential/material conflict of interest with respect to any recommendation and related information and
opinions at the time of publication of research report or at the time of public appearance.
Participants in foreign exchange transactions may incur risks arising from several factors, including the following: ( i) exchange
rates can be volatile and are subject to large fluctuations; ( ii) the value of currencies may be affected by numerous market
factors, including world and national economic, political and regulatory events, events in equity and debt markets and changes in
interest rates; and (iii) currencies may be subject to devaluation or government imposed exchange controls which could affect the
value of the currency. Investors in securities such as ADRs and Currency Derivatives, whose values are affected by the currency of
an underlying security, effectively assume currency risk.
Research analyst has served as an officer, director or employee of subject Company: No
ESL has financial interest in the subject companies: No
ESL’s Associates may have actual / beneficial ownership of 1% or more securities of the subject company at the end of the month
immediately preceding the date of publication of research report.
Research analyst or his/her relative has actual/beneficial ownership of 1% or more securities of the subject company at the end of
the month immediately preceding the date of publication of research report: No
ESL has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately
preceding the date of publication of research report: No
Subject company may have been client during twelve months preceding the date of distribution of the research report.
There were no instances of non-compliance by ESL on any matter related to the capital markets, resulting in significant and
material disciplinary action during the last three years except that ESL had submitted an offer of settlement with Securities and
Exchange commission, USA (SEC) and the same has been accepted by SEC without admitting or denying the findings in relation to
their charges of non registration as a broker dealer.
A graph of daily closing prices of the securities is also available at www.nseindia.com
Analyst Certification:
The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about
the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or
indirectly related to specific recommendations or views expressed in this report.

Additional Disclaimers

Disclaimer for U.S. Persons

This research report is a product of Edelweiss Securities Limited, which is the employer of the research analyst(s) who has
prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States
(U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to
supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required
to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public
appearances and trading securities held by a research analyst account.

This report is intended for distribution by Edelweiss Securities Limited only to "Major Institutional Investors" as defined by Rule
15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and
Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as
specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied,
duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor.

20 Edelweiss Securities Limited

 YES Bank

In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC
in order to conduct certain business with Major Institutional Investors, Edelweiss Securities Limited has entered into an
agreement with a U.S. registered broker-dealer, Edelweiss Financial Services Inc. ("EFSI"). Transactions in securities discussed in
this research report should be effected through Edelweiss Financial Services Inc.

Disclaimer for U.K. Persons

The contents of this research report have not been approved by an authorised person within the meaning of the Financial
Services and Markets Act 2000 ("FSMA").

In the United Kingdom, this research report is being distributed only to and is directed only at (a) persons who have professional
experience in matters relating to investments falling within Article 19(5) of the FSMA (Financial Promotion) Order 2005 (the
“Order”); (b) persons falling within Article 49(2)(a) to (d) of the Order (including high net worth companies and unincorporated
associations); and (c) any other persons to whom it may otherwise lawfully be communicated (all such persons together being
referred to as “relevant persons”).

This research report must not be acted on or relied on by persons who are not relevant persons. Any investment or investment
activity to which this research report relates is available only to relevant persons and will be engaged in only with relevant
persons. Any person who is not a relevant person should not act or rely on this research report or any of its contents. This
research report must not be distributed, published, reproduced or disclosed (in whole or in part) by recipients to any other
person.

Disclaimer for Canadian Persons

This research report is a product of Edelweiss Securities Limited ("ESL"), which is the employer of the research analysts who have
prepared the research report. The research analysts preparing the research report are resident outside the Canada and are not
associated persons of any Canadian registered adviser and/or dealer and, therefore, the analysts are not subject to supervision by
a Canadian registered adviser and/or dealer, and are not required to satisfy the regulatory licensing requirements of the Ontario
Securities Commission, other Canadian provincial securities regulators, the Investment Industry Regulatory Organization of
Canada and are not required to otherwise comply with Canadian rules or regulations regarding, among other things, the research
analysts' business or relationship with a subject company or trading of securities by a research analyst.

This report is intended for distribution by ESL only to "Permitted Clients" (as defined in National Instrument 31-103 ("NI 31-103"))
who are resident in the Province of Ontario, Canada (an "Ontario Permitted Client"). If the recipient of this report is not an
Ontario Permitted Client, as specified above, then the recipient should not act upon this report and should return the report to
the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any Canadian person.

ESL is relying on an exemption from the adviser and/or dealer registration requirements under NI 31-103 available to certain
international advisers and/or dealers. Please be advised that (i) ESL is not registered in the Province of Ontario to trade in
securities nor is it registered in the Province of Ontario to provide advice with respect to securities; (ii) ESL's head office or
principal place of business is located in India; (iii) all or substantially all of ESL's assets may be situated outside of Canada; (iv)
there may be difficulty enforcing legal rights against ESL because of the above; and (v) the name and address of the ESL's agent for
service of process in the Province of Ontario is: Bamac Services Inc., 181 Bay Street, Suite 2100, Toronto, Ontario M5J 2T3 Canada.

Disclaimer for Singapore Persons

In Singapore, this report is being distributed by Edelweiss Investment Advisors Private Limited ("EIAPL") (Co. Reg. No.
201016306H) which is a holder of a capital markets services license and an exempt financial adviser in Singapore and (ii) solely to
persons who qualify as "institutional investors" or "accredited investors" as defined in section 4A(1) of the Securities and Futures
Act, Chapter 289 of Singapore ("the SFA"). Pursuant to regulations 33, 34, 35 and 36 of the Financial Advisers Regulations ("FAR"),
sections 25, 27 and 36 of the Financial Advisers Act, Chapter 110 of Singapore shall not apply to EIAPL when providing any
financial advisory services to an accredited investor (as defined in regulation 36 of the FAR. Persons in Singapore should contact
EIAPL in respect of any matter arising from, or in connection with this publication/communication. This report is not suitable for
private investors.
Copyright 2009 Edelweiss Research (Edelweiss Securities Ltd). All rights reserved

Access the entire repository of Edelweiss Research on www.edelresearch.com

21 Edelweiss Securities Limited

Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai 400 098
Tel: +91 22 4009 4400. Email: research@edelweissfin.com