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June 8, 2024

YES Bank Shares Dip on GST Penalty; ICICI Securities Maintains ‘Sell’ Rating

Shares of YES Bank experienced a decline of 3.44% to Rs 24.55 per share on the BSE during Thursday’s intraday trading. This drop followed the announcement that YES Bank had received a service tax demand order imposing a penalty exceeding Rs 6.42 crore.

The bank clarified that this demand was issued by the Office of the Commissioner of GST & Central Excise, Maharashtra, on May 2, 2024. The total liability, including interest and penalty, amounted to Rs 6,41,84,437. While acknowledging the demand, YES Bank noted that it falls below the material threshold limit for the bank, hence it does not anticipate a significant impact on its financial or operational activities. The bank intends to appeal against this order.

On May 1, 2024, YES Bank also received two GST demand orders from the GST departments of Manipur and Punjab, imposing penalties totaling over Rs 6.87 lakh. These penalties were related to the reversal of input tax credit (ITC), along with interest. Similar to the service tax order, YES Bank stated that these demands fall below the material threshold limit and are not expected to significantly impact its operations. The bank plans to appeal against these orders as well.

Despite these tax demands, YES Bank’s financial performance showed marked improvement. The Mumbai-based private lender’s standalone net profit more than doubled to Rs 452 crore for the financial fourth quarter, compared to Rs 202 crore in the same period the previous year. Additionally, the bank’s gross non-performing asset ratio improved to 1.7% at the end of March from 2% at the end of December.

Other income, which includes fees earned from non-lending services to customers, increased by 56.2% year-on-year. Net interest income, the difference between interest earned on loans and interest paid to depositors, rose by 2.3% to Rs 2,153 crore. However, the net interest margin, a key profitability measure, decreased to 2.4% from 2.8% a year earlier and remained flat on a quarterly basis.

ICICI Securities, in its results update, acknowledged the improvement in YES Bank’s profitability. However, it highlighted ongoing challenges, including the bank’s significant investment in the rural investment development fund (RIDF), which constitutes 11% of total assets. The brokerage firm noted that YES Bank is making concerted efforts to enhance its priority sector lending, which should reduce the incremental burden from RIDF investments and support better yields and return on assets (RoA).

ICICI Securities projected an improvement in RoA to 1.0% by FY26, up from the current FY24 RoA of 0.3%, driven by an improving net interest margin (NIM) trajectory and lower credit costs. Nevertheless, the firm maintained a ‘Sell’ rating on YES Bank’s stock, citing unattractive valuations. The stock is trading at a price-to-earnings (P/E) multiple of 58 times, and ICICI Securities revised its target price to INR 20 from INR 17 previously.

As of 12:50 PM, YES Bank’s stock was trading 1.81% lower at Rs 24.98 per share on the BSE. In comparison, the S&P BSE index was down 0.81% at 74,010 levels.

YES Bank’s current performance and the penalties imposed reflect ongoing challenges, but with strategic efforts in place, the bank aims to stabilize and enhance its financial health. However, market sentiment remains cautious, as evidenced by the brokerage’s continued ‘Sell’ recommendation.

Read more latest news on R9 News

Jhumpa Lahiri

Jhumpa Lahiri

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