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Analysis: What Went Wrong For Yes Bank in Q4?

IndianMoney.com Research Team | Posted On Thursday, May 02,2019, 02:26 PM

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Analysis: What Went Wrong For Yes Bank in Q4?

 

 

The shares of Yes Bank have collapsed. Yes, the shares of Yes Bank have fallen more than 30% in a day. Why did this happen? Yes Bank has reported its first ever quarterly loss. This has led to a massive Rs 16,000 Crore erosion in market capitalization. What is market capitalization? The market capitalization is calculated by multiplying the current share price by the total number of shares.

Institutional Investors lost a massive Rs 10,000 crore value in holdings. This is the biggest ever one-day decline in the value of Yes Bank shares in a day. This is the lowest level since December 10th 2018. Domestic mutual funds lost Rs 1,500 Crores in a day and FIIs a whopping Rs 6,500 Crores on a hot Tuesday.

Yes Bank shares collapsed to Rs 165.30 and then closed at Rs 168. This was a fall of 30.4% in the day. Why did this happen? Yes Bank reported its first ever quarterly loss. It also has a high exposure to the Reliance Group Companies.

CARE Ratings downgraded Reliance Home Finance Ltd long-term debt, market-linked debt, Non Convertible Debentures (NCDs) to a ‘C’ rating. NCDs are debt instruments with fixed tenure and you earn regular interest at a certain rate from them. The long-term debt programme of the bank facilities was reduced to a miserable ‘D’.

ICRA a reputed rating agency reduced the rating for Reliance Home Finance Ltd short term debt from ‘A2’ to ‘A4’. This is because of the slow pace of monetization of non-financial services businesses and no improvement in the liquidity condition. The pace of asset monetization has been really slow and there are a lot of debt payments coming up.

Credit Rating firms have downgraded Reliance Home Finance (RHFL) and Reliance Commercial Finance (RCFL) debt. Mutual Funds have an exposure of Rs 2,600 Crores to RHFL and RCFL debt. Yes Bank too has huge exposure to Reliance Group Companies. A number of brokerages have downgraded Yes Bank shares, leading to panic selling.

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Analysis: What Went Wrong For Yes Bank in Q4?

Why Yes Bank Shares Crashed?

Yes Bank on Friday posted its first ever quarterly loss of Rs 1,507 Crores. This was for the March Quarter, compared to a profit of Rs 1,180 Crores a year earlier. Provisions soared over 9 times since the past year. Provisions are cash set aside from the profits of a business to cover a liability. Is this a great time to buy Yes Bank shares? Analysts are not sure.

Analysts have said Yes Bank shares look weak on Technical charts. They believe the Yes Bank shares will fall below Rs 150. Yes Bank could do a QIP at lower levels. A qualified institutional placement or QIP is a tool to raise capital. A listed Company issues equity shares, fully or partially convertible debentures or any other security other than warrants, which can be converted into equity shares. Only Institutions and QIBs, Qualified Institutional Buyers, like Mutual Funds, SEBI registered FIIs and Venture Capital Funds, Insurers registered with IRDA, Pension Funds and so on can participate in the QIP. Yes Bank shares have strong support at Rs 150 according to Motilal Oswal.

Yes Bank shares are down more than 50% over the last year. The share saw recovery in the past 3 months and then crashed. Yes Bank is facing multiple pressures like lower NIMs, Net Interest Margins (This is the difference between interest income earned and interest income paid by the bank), relative to its interest earning assets like cash. It also faces issues over fees, growth, capital and weaker asset quality.

Moody’s has pegged Yes Bank’s NPAs at 8% and says, more pain will follow. Yes Bank has overall stressed assets of 8% of total loans. The new CEO of Yes Bank, Ravneet Gill, has marked a Rs 10,000 Crore portfolio as potentially stressed. A contingency provision which represents 20% of the Rs 10,000 Crore portfolio resulted in the losses according to Ravneet Gill. The bank expects 50% of potentially stressed loans to slip into NPAs. The bank could slow down on loan growth to 20-25% compared to the recent average of 34%.

What Went Wrong for Yes Bank?

Yes Bank reported its highest quarterly loss of Rs 1,507 Crores for the period ended March 31st. Yes Bank provisions rose from Rs 550 Crores in the December Quarter to Rs 3,662 Crores in the March Quarter.

So what went wrong so fast? Yes Bank had heavy exposure to an airline Company and an Infrastructure Conglomerate. The airline Company was believed to be Jet Airways and the Infrastructure Conglomerate, IL&FS. Yes Bank also has huge exposure to Reliance Group Company Debt.

What top Brokers Say on Yes Bank Shares?

Macquarie Capital Securities has said that it got the assessment on Yes Bank all wrong. It believed that Yes Bank had the ability to thrive and perform in the risky structured finance business. The head of the financial services research at Macquarie, Suresh Ganapathy, has said that the call on Yes Bank was the biggest mistake of his professional career. Macquarie Capital Securities has downgraded the stock to underperform and slashed the target price to Rs 165. Morgan Stanley has set a target price of Rs 125.

What new CEO Ravneet Gill Can Do?

Yes Bank CEO Ravneet Gill, will focus on compliance and Corporate Governance. These issues led to the ouster of the previous CEO Rana Kapoor by the banking regulator, RBI.

This is what Ravneet Gill has to say on a recent meeting with a top MNC. An MNC which banks with a big foreign lender wanted to undertake a large remittance transaction. It approached Yes Bank to check if could get it done. This foreign lender didn’t want any hassles with RBI vis-à-vis this transaction. The foreign lender was firm on this. Ravneet Gill aims to eliminate the bad perception on Yes Bank. It wants to send a message that it is closely aligned with the RBI and the banking regulator, RBI, should be able to validate this.

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