ICICI Bank and Yes Bank are two major private sector lenders in focus in recent times. In the last 3 years, while ICICI Bank has doubled investor wealth, surging over 103 percent, the latter has lost most of its investor wealth due to a major crisis in 2020. Yes Bank has tanked nearly 75 percent since August 2019.
However, it has started to recover and outperformed ICICI Bank in the recent past. Yes Bank has gained around 29 percent in the last 1 year and Just in 2022 YTD, it has added a little over 20 percent. Meanwhile, ICICI Bank rose 16 percent in the last 1 year and 10 percent in 2022 YTD.
In comparison, the Nifty Bank has risen 4.5 percent in the last 1 year and 6 percent in 2022 so far.
The recent rise in Yes Bank comes on the back of strong quarterly earnings and recent investments of $1.11 billion or around ₹8,900 crore by private equity funds Carlyle and Advent International.
Just in July, Yes Bank has advanced 18 percent while ICICI Bank has added 16 percent post their robust June quarter earnings.
About the firms
ICICI Bank provides various banking products and financial services in India and internationally. The company offers savings, salary, pension, current, and other accounts; and time, fixed, recurring, and security deposits. It also provides home, car, two-wheeler, personal, gold, and commercial business loans, as well as loans against securities and other loans. In addition, the company offers insurance products, fixed income products, investment products, such as mutual funds, gold monetization schemes, initial public offerings, and other online investment services. It was founded in 1955 and is headquartered in Mumbai, India.
Meanwhile, Yes Bank is engaged in providing banking services, including corporate and institutional banking, financial markets, investment banking, corporate finance, branch banking, business and transaction banking and wealth management. Its products and services include digital salary account, savings account, current account, YES First, YES Premia, online banking, net banking services, credit card and debit card.
Recently Yes Bank announced investments of $1.11 billion or around ₹8,900 crore by private equity funds Carlyle and Advent International, after trials and tribulations on fundraising that lasted well over three years. Both the global PE funds will be acquiring a 10 percent stake each in the private sector lender. In 2020, the lender was bailed out in an RBI and government-led reconstruction scheme due to a lack of capital buffers.
The Reserve Bank India on March 5, 2020, imposed a moratorium on troubled lender YES Bank and capped withdrawals at ₹50,000. Subsequently, the restructuring plan was notified by the government on March 13 leading to the lifting of the moratorium on March 18, 2020. RBI also appointed Prashant Kumar, who was serving as chief financial officer and deputy managing director at State Bank of India (SBI), as an administrator for Yes Bank to stabalise the performance of the lender.
Yes Bank delivered a better-than-expected performance in the June quarter. The private sector lender reported a 50.17 percent year-on-year (YoY) rise in its net profit at ₹310.63 crore compared with ₹206.84 crore in the same quarter last year. Net interest income (NII) for the quarter jumped 32 percent YoY to ₹1,850 crore and Net Interest Margin (NIM) for the quarter came in at 2.4 percent, up nearly 30 basis points YoY. Its total provisions declined 62 percent YoY to ₹175 crore as of June end, primarily aided by lower slippages.
Yes Bank's asset quality improved in Q1 as gross non-performing assets (NPAs) stood at 13.40 percent as against 13.9 percent in the fourth quarter of last fiscal. The bank’s Net NPA ratio also improved to 4.2 percent in Q1FY23 as compared to 4.5 percent in Q4FY22.
In the June quarter, the private sector bank also reported a 50 percent in net profit to ₹6,905 crore against a profit of ₹4,616 crore in the same quarter a year ago. ICICI Bank’s total income also improved to ₹28,336.74 crore in the quarter under review, up from ₹24,379.27 crore in the year-ago period.
ICICI's growth in PAT was aided by healthy NII growth, strong fee income, and controlled provisions. The bank reported an annualized RoA and RoE of 2 percent and 15.9 percent in Q4FY22. NII growth stood at 21 percent YoY (inline), aided by a 2 bps QoQ expansion in domestic NIM (net interest margin) to 4.14 percent and healthy loan growth of 21 percent.
Yes Bank vs ICICI Bank: Which to pick?
According to Axis Securities, the operating performance of Yes Bank has seen an improving trend over the past few quarters, with credit costs moderating, however, despite the major investment in Yes Bank, ICICI Bank remains Axis' most preferred pick in the banking sector.
"The announcements regarding a sizable capital raise to bolster the capital adequacy to fuel medium-term growth aspirations and the JV starting the ARC venture which will help Yes Bank clean its balance sheet, are positive. However, it would be early to comment on the long-term prospects," said the brokerage. The sustainability of the operational performance, profitability and asset quality improvement will be key monitorable to build confidence in the long-term prospects of Yes Bank, noted Axis.
Meanwhile, it pointed out that ICICI Bank has consistently outperformed its peers over the past few quarters and has been ticking all the right boxes in terms of growth, margins, and asset quality. The outlook on the ICICI bank’s loan growth has strengthened with improving performance across segments, with a focus on the high-yielding Retail & SME segment, it added.
With a strong all-around performance led by robust loan growth, strong liability franchise, improving core operating profitability, benign credit costs, and healthy asset quality trends, the brokerage expects ICICI Bank to witness RoA expansion over the medium term.
Other analysts also believe that ICICI Bank looks to be the most promising one in the sector. Choice Broking also noted that ICICI looks better placed than Yes Bank despite strong earnings by both the lenders. According to the brokerage, even though the recent investment is a positive for Yes Bank, the fundamentals of ICICI Bank remain better.
In a recent note, Motilal Oswal (MOSL) also lauded ICICI Bank saying that it keeps on raising the benchmarks with exemplary performance every quarter. "We cannot help but admire how the bank has consistently delivered industry-leading performance amid a challenging period," said MOSL. The lender remains MOSL's top pick in the sector.
"What looks to be a picture-perfect performance in one quarter only adds more colors in the ensuing quarter. Our conviction in the bank remains strong and we believe that the journey is likely to get even more exciting in the coming years," said the brokerage.
Most brokerages continue to have a 'hold' rating on Yes Bank while almost all brokerages have 'buy' calls on ICICI Bank.
ICICI Securities has a hold rating on Yes Bank shares with a target price revised upwards to ₹15.7 from ₹14 post the investment announcement., ICICI Securities said that with the benefits of a likely credit rating upgrade and optimal capital utilisation with an improved growth profile, the investment in Yes Bank is unlikely to be earnings or RoE dilutive
“Positivity is setting in for YES Bank with the proposed equity capital raise. This confidence, as well as growth capital, will boost CET-1 by 3.84 percent to almost 15.7 percent. Also, since it is being raised close to the book value, it will not be book value dilutive," said brokerage ICICI Securities.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.