Yes Bank Stock review – Feb 2019

Yes Bank Limited is India’s fourth largest private sector bank, founded by Rana Kapoor and Ashok Kapur in 2004. It primarily operates as a corporate bank, with retail banking and asset management as subsidiary functions. The Yes Bank stock opened 30% up on 14th February 2019 at Rs. 204 from the closing of Rs. 168 on the previous day (13th February 2019).

Problems with Yes Bank

In the years 2015-16 and 2016-17, asset quality divergence took place. This means that the actual NPA’s were different and the reported NPA’s from the bank were different, that is there was a mismatch in the values of the NPA. RBI raised concern on this after which a full asset quality audit was conducted. In that it was found out that the bank had reported NPA’s 2%-3% on a lower side, it means that if the NPA was around 6% then only 3% of the NPA’s were reported.

This was a huge number in the asset quality divergence and for this reason RBI ordered Mr. Rana Kapoor to resign as the CEO of Yes Bank and appoint a new CEO. This resulted in the stock getting beaten in the stock market.

Now, in the asset quality divergence report of 2017-18, RBI reported it to be NIL. This means that the reporting of NPA’s was not done on the lower side, the actual NPA’s were only reported. This raises some questions regarding the way RBI acted and the timing of the actions taken by the RBI.

YES BANK’s Stock Price Movement

Should I Invest in Yes Bank in the Indian Share Market
Yes Bank Stock movement in last 1 year
  • In August 2018, the share price was trading at a share price of around Rs. 400. But after all these problems (as mentioned above), the share price in February 2019, in hardly 6-7 months, came down at Rs. 171. The fall in the share price was more than 50%. Here, minority holders that is the general public were the ones who had to incur huge losses. Currently (on 18th February 2019), the stock is being traded at Rs. 214.
  • After the asset quality divergence was reported as NIL, immediately all the stock broking houses increased the targets for the share of the bank. Where the targets of Yes bank’s share price were lower earlier, have now gone up to a range of 275 to 300 after the asset quality divergence report was NIL.
  • Before the fall, the stock of was trading with a PE at the level of 20+. But after the fall, it was trading with a PE of around 9.

After the market rise (on 14the February 2019), the PE came up till 11.70. And currently (on 18th February 2019) it is almost same at 11.50.

YES BANK’s New CEO

Another positive for Yes bank seen by the stock broking houses is their new CEO. Mr. Ravneet Gill has been appointed as the new CEO and will join and take charge of the position from 1st March 2019.

Summary

  • There is no problem with the business of the bank. The major problem with the bank was their corporate governance, that is the decisions that were not taken properly by the management which were found during the audit.
  • In what happened with this Bank, the intentions of the RBI was definitely to set an example.
  • The timing at which all the events unfolded was negative.
  • With the NIL asset quality divergence and the new CEO, this could prove to be a revival point for the bank.

Notes: –

  • The numbers that are used are approximate and have been rounded for presentation purposes.
  • We are not in any way saying that this is a bad company, or the stock of this company is bad.
  • We are also not suggesting anyone to immediately go and buy this stock or invest in the stock markets.
  • Only an analysis has been presented here.

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