Digital Advances And Margin Pressures Will Define Indian Banking Future

Key Takeaways

• Investor optimism may overlook rising competition, muted loan growth, margin compression, and lingering asset quality risks that could constrain Yes Bank's financial performance.
  
• Overreliance on operational efficiencies and fee-based income may not sufficiently offset headwinds, risking missed profitability targets and downside earnings surprises.
  
• Credit rating upgrades, digital innovation, improved asset quality, and growing retail deposits position Yes Bank for stronger profitability, lower funding costs, and sustainable long-term growth.

Catalysts

Engages in the provision of banking and financial products and services primarily in India.

• Investors may be pricing in overly optimistic expectations around Yes Bank's digital transformation initiatives, given recent awards and new app launches, without adequately accounting for rising competitive pressure from fintechs that could limit fee income growth and acquisition of new-to-bank customers. This could inflate projections for core revenue growth.
  
• Yes Bank's strategy to leverage ongoing financial inclusion and rising urbanization trends in India might be overestimated, as stagnant retail lending growth and a cautious loan underwriting posture suggest limitations in immediately translating these macro tailwinds into double-digit loan growth. This may constrain both advances and associated net interest income in the near term.
  
• Prolonged industry-wide deposit repricing and interest rate compression, coupled with increasingly aggressive competition in both retail and corporate loan segments, are likely to pressure net interest margins. Overvalued shares may not fully reflect NIM compression risk and resulting muted earnings power over subsequent quarters.
  
• Investors could be underestimating persistent asset quality concerns in microfinance and small/mid-enterprise loans, which continue to drive elevated slippage despite improved headline NPA ratios; this trend could drive higher credit costs and reintroduce volatility to net profits, especially if macro conditions worsen.
  
• There may be overreliance on continued improvement in cost-to-income metrics and cross-sell-based fee income to offset near-term headwinds, despite management's own acknowledgment of slow loan growth, margin pressure, and the risk that efficiency gains alone will be insufficient to deliver the longer-term 1%+ ROA target, risking a downside to consensus earnings estimates.

Yes Bank Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Yes Bank's revenue will grow by 16.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 18.8% today to 20.9% in 3 years time.
• Analysts expect earnings to reach ₹48.3 billion (and earnings per share of ₹1.38) by about July 2028, up from ₹27.4 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₹40.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.6x on those 2028 earnings, down from 22.8x today. This future PE is greater than the current PE for the IN Banks industry at 12.6x.
• Analysts expect the number of shares outstanding to grow by 2.47% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.58%, as per the Simply Wall St company report.

Yes Bank Future Earnings Per Share Growth

Risks

• Credit rating upgrades from major agencies like Moody's, ICRA and CARE, along with a higher provision coverage and capital adequacy ratio, strengthen Yes Bank's resilience and creditworthiness, which could attract more deposits and lower borrowing costs, positively supporting both revenue growth and net margins.
  
• Rapid digital adoption, including award-winning digital platforms and ongoing investments in AI and process automation, positions Yes Bank to capitalize on India's secular digitalization trend, potentially driving significant growth in fee-based income and increasing operating leverage for higher earnings.
  
• The bank's increasing share of granular retail and branch-led deposits (up 20% YoY) and a steady CASA ratio improvement reflect growing customer trust and deposit franchise depth, enabling lower cost of funds and supporting stable or expanding net interest margins.
  
• Ongoing asset quality improvements-evidenced by stable and low gross and net NPA ratios and a further strengthening of provision coverage-reduce the risk of unexpected credit losses, thereby enhancing earnings stability and supporting higher long-term profitability.
  
• Management's focus on profitable and disciplined loan growth, with a healthy capital buffer (CET1 of 14%), along with projections to achieve a 1%+ ROA by FY26/27, suggest the bank is entering a sustainable growth phase that could meaningfully lift long-term earnings and deliver a higher valuation multiple.

Valuation

• The analysts have a consensus price target of ₹17.636 for Yes Bank based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹20.0, and the most bearish reporting a price target of just ₹17.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹231.2 billion, earnings will come to ₹48.3 billion, and it would be trading on a PE ratio of 18.6x, assuming you use a discount rate of 14.6%.
  
• Given the current share price of ₹19.9, the analyst price target of ₹17.64 is 12.8% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.