Yes Bank’s Share Price Drop 50% in May Month- Why?
Yes Bank, India’s fourth largest private lender and a stock market darling for years, is now being shunned by investors. In the past month alone, the bank’s stock has lost nearly half its value, after the lender reported a record loss for the quarter ended March 31, 2019. From Rs.255 on April 18, its shares closed at Rs.134.55 apiece on BSE on Friday (May 17). Let us see the reasons behind the decline in share price.
Yes Bank Limited is India’s among large private sector bank players. It was founded by Rana Kapoor and Ashok Kapur in 2004. The bank primarily operates as a corporate bank, with retail banking and also asset management as subsidiary functions.
Yes Bank Stock Analysis – 5 Points
Following the March quarter loss, several brokerage houses including Macquarie, HSBC, Citigroup, and Morgan Stanley have either a “sell” rating on the stock or remain “underweight.” The stock has of Yes Bank has been corrected severely. Its share price has almost halved in last one month.
Problems of Yes Bank
- All the problems started in FY2015-16. In year ended March 2016, the bank reported NPA’s worth $113 million (around Rs. 600-700 Cr). But when RBI conducted an audit, that time the actual NPA value came out to be $630 million. A gap of $517 million was found in the reported NPA’s. RBI gave many observations from their audit to the bank and told them to revise the NPA figure.
- That was not the only time it happened. In FY2016-17 too, there were discrepancies in the NPA reporting done by the bank. This time there was an underreporting of almost $1 billion NPA’s. From that time RBI started intervening in the management of the bank and also started giving out a lot of observations to the bank.
- And this was the reason Rana Kapoor, the then MD & CEO of the bank, did not receive a continuation of 3 years as it was not approved by the RBI. This was the time when the share price of Yes Bank started getting impacted and set out on a negative trend.
- The new CEO of Yes bank, Ravneet Gill, has done an extra provisioning for $300 million. That is why a net loss of Rs. 1,500 Cr was seen in the March 2019 ended quarter.
- Since listing the bank had never reported a negative quarter. Q3FY19 is the first where the bank has reported a loss. This happened because of the actions taken by Ravneet Gill to bring the bank back on the track.
But will the problems end here?
- RBI doesn’t think so. Thus, RBI has appointed a former deputy Governor Mr R. Gandhi as an Additional Director on the board of Yes Bank in May 2019.
- The RBI doesn’t like to take such actions. It also taken such actions in the PSU banks already. And now when a private sector bank does such things then RBI is bound to take strict actions against them. In coming time, the reporting by the RBI can get more aggressive from this point forward.
Why will the RBI reporting get more Aggressive?
- Out of the total exposure Yes Banks has from its loans, corporate & retail funding,
- 16.6% of the exposure is from Shadow financing companies (NBFC’s) and real estate. After the IL&FS crisis started in August 2018, NBFC’s were the one who got hit the most. And yes bank has sizeable exposure to NBFC’s.
- 16.7% of the exposure is from Sensitive (stress) sectors. Sensitive sector include steel, power, telecom & jewellery
- Thus, 1/3rd of the total exposure of Yes Bank is towards Stressed Assets. And this can be very negative for the bank.
Exposure to Riskier Companies
- The bank has exposure to 2 big groups which are themselves going through a lot of issues. The 2 groups are Anil Ambani Group and Promoters of ZEE, that is Subhash Chandra.
- The bank has exposure to the telecom and finance companies from Anil Ambani Group. The total exposure to the bank from this group is worth $1.85 billion. And the major exposure is from Reliance Communications which has filed for bankruptcy.
- Subhash Chandra has made some investment in some infrastructure companies. The bank here has an exposure of $470 million for the ZEE promoter.
- The exposure form ZEE can still be recovered as the promoter has given its word, but the exposure from Anil Ambani Group may not be recovered fully.
- It will take some time for this bank to get back on its feet.
- Just like Indiabulls Housing Finance and Lakshmi Villas Bank merger, Yes Bank may too be merged with some other banking entity but the chance of which are very sleek as it would require a very big balance sheet to acquire this bank. Also, no emerging bank would want to merge with Yes Bank in this situation.
- Retail Investors should always stay away from companies where corporate governance issues have been reported.
- Retail Investors should avoid this stock.
- 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.
- We are also not suggesting anyone to immediately go and buy the stock or invest in the stock markets.
- Only an analysis has been presented here. No judgments or final statements are being made here.