Yes Bank vs IDFC Bank: Banks are the economic engine. The higher the asset quality of banks, the better the state of the economy. Growing income and population can drive demand for goods and services in the long run. Banks facilitate the flow of money in markets following monetary policy, which determines the economy’s growth and decline. In this article, we will compare Yes Bank vs IDFC First Bank in the banking sector.

Yes Bank

Yes Bank Logo

Company Overview

Rana Kapoor founded the company in 2003 in Mumbai, India. They offer corporate banking, branch banking, and commercial banking services to their clients. The company also provides investment banking services, including mergers and acquisitions, divestitures, private equity syndication, and IPO advisory services.

The bank has 1,192 branches and 1,301 ATMs across the country and three union territories. According to the FY23 report, the total number of employees was 27,517.

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Battled Crisis

The company, which was once an outperformer and the 5th largest private bank in the country, ran into problems due to stressed assets such as ADAG, Essel Group, and DHFL. Rana was aggressive in his tactics, lending corporate loans at a higher interest rate, which increased the risk. Rana Kapoor and Morgan Credits Private jointly sold 2.16% in the open market, which raised concerns.

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Yes Bank invested in DHFL bonds despite concerns raised by the bank’s Treasury Department. Problems arose as a result of the Indian economy’s slowdown, the NPA began to rise, and the founder handled some of the money transfers through various accounts. 

Yes Bank experienced a crisis in 2020 as a result of corporate governance issues and mounting bad loans, which harmed the brand’s image and raised financial stability concerns. To stabilise the bank, a consortium led by SBI invested Rs. 7,250 crores at Rs. 10 per share for 725 crore shares, with additional banks such as ICICI Bank, HDFC Ltd., Axis Bank, Kotak Mahindra Bank, Bandhan Bank, Federal Bank, and IDFC First Bank also investing to increase the bank’s liquidity. 

Depositors withdrew money from banks due to eroding public trust in their financial constraints and the rising NPA. The bank is looking to make a comeback to regain public trust, improve lending and reduce NPAs, increase transparency, and improve corporate governance.  

Segment Analysis

In FY23, Treasury accounts for 19% of revenue, Corporate and Wholesale Banking accounts for 37%, Retail Banking accounts for 42%, and Other Banking Operations accounts for 3% of revenue.

IDFC First Bank

IDFC First Bank Logo

Company Overview

It all started as NBFC, IDFC Limited was started in 1997 primarily to lend money to infrastructure projects and businesses following RBI approval in 2013. IDFC Bank was established and demerged from IDFC Ltd. in November 2015.

To increase its market share and presence, the bank diversified primarily into retail banking and later merged with Capital First. While at ICICI Group, the current CEO, V. Vaidyanathan, had experience growing the customer base by opening more branches. The bank has 809 branches and 925 ATMs across the country, with a total employee count of 23,096 over the last four years. 

They offer loans and banking services to small and medium-sized businesses. Individuals, small businesses, and corporations can all benefit from the bank’s financial services. The bank offers retail banking, corporate banking, IPO services, microfinance, and wealth management services.

Segment Analysis

In FY23, Treasury accounts for 28% of revenue, Corporate or Wholesale Banking accounts for 14%, Retail Banking accounts for 57%, and Other Banking Business accounts for 1% of revenue.

Merger Update

On July 3rd, 2023, the company announced a merger with IDFC Limited. According to the bank, the merger will simplify the corporate structures of various companies, create diverse public and institutional shareholders, and make it much easier to raise money in the form of equity with diverse holdings. Investors would get 155 IDFC First Bank Shares for every 100 shares held in IDFC Ltd. It was one of the biggest mergers in the banking sector after the recent HDFC Bank and HDFC Ltd. merger.

Industry Analysis

By 2050, India is expected to have the third-largest domestic banking sector. India, the world’s largest consumer market, will overtake the United States as the third largest consumer economy by 2030, thanks to a young population of 65% of the population under the age of 35.

The Indian banking industry has been on a roll, thanks to strong economic growth, rising disposable incomes, increased consumerism, and easier credit access. Digital payment methods have grown by leaps and bounds in recent years.  As a result, traditional paper-based instruments such as cheques and demand drafts now account for a negligible portion of payment volume and value. Recent collaborations with Fintech are also contributing to significant advancements.

Yes Bank vs IDFC First BankFinancials

Net Interest Income and Net Profit

Yes Bank In FY23, net interest income increased 21.75% year on year, compared to 30.17% year on year for IDFC First Bank.

Net Interest Income is improving at both banks. Yes, bank NII has been increasing since FY22, while IDFC FB NII has been increasing since FY19. Both the bank’s non-core businesses, such as other income, are increasing in proportion to its revenue. However, rising interest rates may put pressure on the NII.

Particulars/ Financial YearNet Interest Income (Cr.)
Yes BankIDFC First Bank
2022-23₹ 7,902.40₹ 12,637
2021-22₹ 6,490.33₹ 9,707.62
2020-21₹ 7,428.35₹ 7,383.03
2019-20₹ 6,793.96₹ 6,012.05
2018-19₹ 9,812.51₹ 3,460.77

Yes Bank’s net profit for FY23 was -30.84% year on year, and IDFC First Bank’s net profit was 1,778.24% year on year. The net profit of Yes Bank is slightly improving after huge losses in FY20 and FY21 and IDFC FB recovered from low profits until FY22. Yes Bank is still recovering from the crisis, and its profits have recently decreased in comparison to IDFC FB, which has seen an exponential increase in earnings and has outperformed Yes Bank.

Particulars/ Financial YearNet Profit (Cr.)
Yes BankIDFC First Bank
2022-23₹ 735.81₹ 2,484.92
2021-22₹ 1,064.05₹ 132.30
2020-21(₹ 3.488)₹ 483.17
2019-20(₹ 16,432.58)(₹ 2,843.39)
2018-19₹ 1,709.26(₹ 1,907.87)

Net Interest Margin and Net Profit Margin

Yes Bank’s and IDFC FB’s NIM in FY23 were 2.22% and 5.26%, respectively, representing 9.35% and 3.13% year-on-year increases. IDFC First has outperformed Yes Bank in terms of NIM, and it is well above the 5 year average of 4.19%. Yes Bank has a reasonable NIM that is decreasing, raising concerns about margins.

Particulars/ Financial YearNet Interest Margin (%)
Yes BankIDFC First Bank
2022-232.22%5.26%
2021-222.03%5.10%
2020-212.71%4.52%
2019-202.63%4.03%
2018-192.57%2.07%
Average (5 Years)2.43%4.19%

Yes Bank’s and IDFC FB’s NPM in FY23 were 3.24% and 10.93%, respectively, representing a 42.03% decrease for Yes Bank and a 1,319.48% increase for IDFC FB. IDFC First’s NPM has significantly improved when compared to Yes Bank. IDFC FB is on the rise, while Yes Bank NPM fell in FY23, but it was still well above the 5-year average of -13.17%. Yes Bank provisions/write-off increased 983% YoY for non-performing advances in FY20 which is a significant rise resulted in loss.

Particulars/ Financial YearNet Profit Margin (%)
Yes BankIDFC First Bank
2022-233.24%10.93%
2021-225.59%0.77%
2020-21-17.41%3.02%
2019-20-63.07%-17.50%
2018-195.76%-15.40%
Average (5 Years)-13.17%-3.63%

Return Ratios

In FY23, Yes Bank’s and IDFC FB’s RoE were 1.80% and 9.61%, respectively. The averages of Yes Bank and IDFC First in RoE stood at -14.99% and -3.20%. The rise in provisions for IDFC FB in FY20 affected its profitability and its return on equity. For Yes Bank provisions were high in FY20 that resulted in significant losses.

Particulars/ Financial YearRoE (%)
Yes BankIDFC First Bank
2022-231.80%9.61%
2021-223.15%0.62%
2020-21-10.52%2.69%
2019-20-75.74%-18.45%
2018-196.35%-10.48%
Average (5 Years)-14.99%-3.20%

RoA was 0.20% and 1.03% in FY23. Yes Bank and IDFC First’s 5-year RoA averages were -1.33% and -0.12%, respectively. IDFC has grown exponentially in comparison to Yes Bank and is on the rise. Yes Bank is improving, and future years must be tracked to analyse the trend. Yes Bank and IDFC FB had a high negative RoA due to losses in FY20.

Particulars/ Financial YearRoA (%)
Yes BankIDFC First Bank
2022-230.20%1.03%
2021-220.33%0.06%
2020-21-1.27%0.29%
2019-20-6.37%-1.90%
2018-190.44%-1.14%
Average (5 Years)-1.33%-0.12%

Gross and Net Non-Performing Assets

Yes Bank and IDFC FB’s gross NPAs were 2% and 2.51%, respectively, compared to the 10.2% and 3.04% average over the previous five years. Bank’s utmost importance is containing defaults, and Yes Bank and IDFC FB have comparable Gross NPA, but IDFC FB has significantly improved its Net NPA when compared to Yes Bank. Both banks’ NPAs are improving, which reflects better asset quality.

Particulars/ Financial YearGross NPA (%)
Yes BankIDFC First Bank
2022-232%2.51%
2021-2214%3.70%
2020-2115%4.00%
2019-2017%3.00%
2018-193%2.00%
Average (5 Years)10.20%3.04%

Yes Bank and IDFC FBs Net NPAs were 0.83% and 0.86%, respectively, compared to the 3.65% and 1.29% average over the previous five years. Gross NPA represents funds that banks fail to collect, while Net NPA represents the borrower’s default after deducting provisions for bad debts, and segregation is based on unpaid days by the borrower.

Particulars/ Financial YearNet NPA (%)
Yes BankIDFC First Bank
2022-230.83%0.86%
2021-224.53%1.53%
2020-215.88%1.86%
2019-205.03%0.94%
2018-192.00%1.27%
Average (5 Years)3.65%1.29%

Key Metrics of Yes Bank and IDFC First Bank

Here are some key metrics for both banks:

ParticularsYes BankIDFC First Bank
CMP₹ 26.55₹ 81.05
Market Cap (Cr,)₹ 70,038 Cr₹ 61,965 Cr
Capital Adequacy Ratio (%)18%16%
CASA Ratio (%)30.77%49.76%
Net Profit Margin (%)3.24%10.72%
Cost to Income Ratio (%)42.08%53.92%
FII Holding (%)23.39%24.30%
Enterprise Value (Cr.)₹ 3,25,548.03₹ 2,27,522.57
Price to Book Value1.061.42

Yes Bank vs IDFC First BankFuture Plans

Yes Bank

  • The Bank has raised capital of Rs. 8,900 crores through private equity investors like Carlyle and Advent for a 9.99% stake in the bank and that can help with investors confidence and capital buffer
  • Yes Bank intends to expand its distribution network in FY23 by opening 150 new branches to increase its market presence and share.
  • The Bank’s number one priority will be to improve the CASA ratio while maintaining a deposit growth rate of 15%-16%.
  • The bank’s loan-to-deposit ratio is currently above 90%, and management intends to continue lending out a higher percentage of deposits as loans to increase profitability.

IDFC First Bank

  • The merger with IDFC Limited may help the bank grow in terms of loans and customer base.
  • The bank has been profitable for three years in a row, which may contribute to an increase in government banking business because it has met one of the key criteria.
  • As of Q3 FY24, the bank anticipates sustained loan growth of 20%-22% in FY25.  It chooses a more conservative growth in lending from the aggressive 25%.
  • The management expects its deposit base to grow to around Rs. 5.85 lakh crore by FY29. It expects to see its deposits rise by 25.8% CAGR to achieve this growth.

Conclusion

As we near the end of the article, we will take a quick look at the comparison of Yes Bank vs IDFC Bank. Despite the high-interest rate environment, both banks are on the verge of benefiting from the expanding credit cycle. Demand is increasing, and loan disbursements are increasing as well. 

In comparison to IDFC First Bank, which has emerged as one of the big players in the banking space with strong financials. Yes Bank is in a recovery phase. When the NPM, NIM, and other relevant ratios of both companies are compared, IDFC First Bank emerges as the clear winner. What do you think about the growth of these companies? Let us know about your views in the comments section below.

Written by Santhosh

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