Yes Bank

With the best asset quality and a strong growth rate, Yes Bank is among analysts' favourite stocks in the segment. At the end of the March 2010 quarter, the bank had a net NPA of just 0.06 %, while operating profits were up by 67.3 % compare to the same quarter last year.

For the whole of FY10, the operating profit was up 63.6 %, while net interest income witnessed an upswing of 54.7 %. Interestingly, despite significant improvement in the CASA, Yes Bank's low cost deposits were at 10.5 %, much lower than large banks. Despite this, the bank had a net interest margin of 3.2 %, which is significantly better than most public sector banks.

Yes Bank has built its expertise in corporate banking and retail constitutes a very small part of its business.

However, going forward, in the second phase of expansion (2010-15), it plans to accelerate its presence in commercial banking and aims to grow its balance sheet from the Rs 36,382 Cr at present to Rs 1,50,000 Cr. In terms of valuation, on a trailing 12-month basis, the stock is trading at 17 times.

Investors entering this stock are advised to take a long term earnings expansion play and not PE expansion.

Why Buy:

Yes Bank: Lowest NPA percentage among listed banks, high growth, healthy NIM in spite of low CASA base.