- Yes Bank’s share price has nearly halved in the past one year, but analysts don’t recommend investors to ‘buy.’
- Even at ₹13.55 per share, there’s a chance that the stock is overvalued.
- Experts believe that Yes Bank may go for another round of funding in the near future to try and shore up its provisions as the second wave of pandemic bears down.
When the Reserve Bank of India had to rescue Yes Bank from collapsing in March 2021 — the same time the pandemic hit us all unexpectedly — the double blow had taken the wind out of the share price that hit a low of ₹23.95. .
Today, it is at ₹13.55 — nearly half of what it was a year go. This, 14 months after the RBI placed Prashant Kumar, the former deputy managing director of the State Bank of India, to save Yes Bank from becoming rubble. At the same time, its peers have made money for their investors while those betting on Yes Bank, or finding a bargain any time in the last one year, have been left disappointed.
|Bank||Change in share price from 6 March 2020 to 6 May 2021|
The latest shock was a ₹3,788 crore net loss in Jan-March 2021 triggering a fresh bout of ‘sell’ calls. Some of those targets, set for any time in the following 12 months, have already been hit. That’s how fast the stock has been falling.
Yet, even at this price, analysts aren’t gutsy enough to say ‘buy’. “The real value may be much lower, if you look at book value compared to other banks,” Vikram Sud, chairman and consultant at VSS Advisors and an independent director on the board of DBS Bank, told Business Insider.
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|ICICI Securities||₹ 15||Sell|
Source: Respective reports
A year earlier, between January and March 2020, people who had an inkling that the company — at the time run by Rana Kapoor who is currently lodged at Taloja Jail — was running on fumes, had already been withdrawing their money. The average depositor followed later.
These small deposits, also called CASA (current account-savings account) ratio, are the cheapest source of funds for any bank to make money. There is no run on the bank anymore and so, this number has shown remarkable growth in the last three months. For every ₹10 that depositors had parked in the bank a year ago, there is now ₹15.2.
In the next3years, we continue to stay focused on doubling the deposit book and increasing the customer base to almost 3 times. And we also aim to improve our CASA ratio to 40% and double the cross-sell ratios, Kumar said during Yes Banks fourth quarter earnings call.
However, the street is suspicious of that number too. “If you ask, any customer would not be confident about putting their money in Yes Bank right now. I don’t know if they have enough transparency around what kind of customers are the ones who can give them these deposits,” an analyst from Emkay Global told Business Insider.
The depositors’ confidence, or the lack of it, is not the only fear about Yes Bank
The problem with Yes Bank was that, under Rana Kapoor, it had given a lot of loans that wouldn’t return and it kept brushing the bad loans under the carpet until there was a lot more than it could hide.
The issue of the elusive borrowers may still persist. Even in the first three months of 2021, the lender had to write off a little more than ₹6 out of every ₹100 it gave out. The amount of such stressed loans, ones that are more likely to turn sour, is still high even though it is a fourth of what it was just three months earlier.
|Yes Bank’s latest financials||Jan-March 2021||Change|
|Net interest income||₹987 crore||-22.5% (YoY)|
|Net loss||₹3,787.75 crore||-244.1% (YoY)|
|Provision for bad loans||₹5240 crore||138.3% (QoQ)|
|Gross NPA||15.41%||6 bps (QoQ)|
Source: Yes Bank’s earnings report for Q4 2021 and Q4 2020
Yes Bank CEO wanted to dump bad loans but couldn’t
The private bank’s plan was to get a licence from the Reserve Bank of India (RBI) to set up a separate asset reconstruction company (ARC). This ARC would buy the bank’s bad loans at a discount, help it clear the balance sheets, and start growing from there.
According to the bank’s chief executive, Prashant Kumar, Yes Bank was hoping to deposit nearly ₹50,000 crore of bad loans to the ARC. However, the RBI turned down that request in March citing a conflict of interest.
“Once the stock climbed back up [last year], they [Yes Bank] told investors they would want to apply for a separate ARC and they were confident of getting permission from the RBI, where they would basically park all the bad assets. But that didn’t happen,” said Emkay Global.
However, according to Kumar, the option of setting up an ARC is still on the table. That option is still alive and we would be waiting for more clarification to come from regulator after the report of the expert committee which they have made would come out, he said.
Meanwhile, experts believe that Yes Bank may go for another round of funding in the near future to try and shore up its provisions as the second wave of pandemic bears down. “Market discounts all the knowledge that is known as of today. If new information comes out tomorrow, then the stock will react accordingly,” said an analyst on the condition of anonymity.
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