MUMBAI: A day after the RBI missive, brokerages believe the impending exit of Yes Bank’s CEO & MD Rana Kapoor in next four months will leave a void, and lead to challenges.
While Citi Research said the bank may have little time to scout for an external CEO, others noted that Kapoor’s exit could slow down growth, delay fundraising plans and result in material downsides for stocks.
Insider Rajat Monga, senior group president, appears to be the preferred choice to replace Kapoor, provided he gets the regulator nod. Failing which, the bank will run out of time to find an external candidate, said Citi Research. It downgraded the rating for Yes Bank to ‘Sell’ from ‘Buy,’ citing the premium attached to the stock due to Kapoor’s presence.
The bank’s Board will meet next Tuesday to decide on the future course of action. Kapoor, who co-founded the bank in 2002, has been the bank’s CEO since its inception. Others like IDFC Securities too downgraded the bank to ‘Underperformer’ from ‘Neutral,’ saying the reduction in Kapoor’s tenor was a big negative and his absence will slow down loan and fee growth.
Meanwhile, Edelweiss maintained its buy rating on the belief that the bank has a strong foundation on which the incoming leader can build on.
Similarly, Moody’s Investors Service too affirmed its stable outlook on all Yes Bank’s ratings. According to Moody’s, the bank’s funding structure improved significantly, because sticky current and savings accounts and retail term deposits have grown, making its liability mix granular and reducing dependence on confidence-sensitive wholesale funding.
It further added that profitability was strong, and Moody’s expects it to maintain low credit costs next fiscal. This, along with growth in interest and non-interest income, will help it maintain profitability.
Though the bank’s asset quality is strong than Indian peers and anticipated annual loan growth of 35-40 per cent will outpace the industry average of 10 per cent, this aggressive growth strategy poses asset risks.
The bank’s capitalisation is adequate, but to maintain the current levels, it’ll need to raise capital, and could experience difficulty in raising external capital, impeding the bank’s ability to grow its loan book.