When Yes Bank announced the appointment of its new CEO Ravneet Gill, investors hoped the return of good old days were round the corner. However, with more skeletons tumbling out of the closet - two directors stepped down recently, while rating agencies are queuing up to ring alarm bells over the bank’s exposure to stressed housing finance sector besides asset quality concerns - Gill’s task of repositioning the bank in the land of respectable lenders is getting rather tough.
It just took days and weeks for brokerages to raise alarm bells after a period of calm, which led the bank’s scrip to a non-stop declining mode. The scrip fell over 50 per cent in the recent months and there are more brokerages with sell ratings on the stock than those with calls to buy.
For most of the analysts, asset quality is a key concern, considering its relatively high exposure to corporates. Besides, the bank’s over dependence on non-retail deposits compared with large peers is seen as a structural weakness, which could put pressure on margins. Last week, Moody’s too placed the lender’s Ba1 foreign currency issuer rating under review for a downgrade considering liquidity pressures on housing finance companies and its likely impact on Yes Bank given its exposure here.
As if the asset quality concerns aren’t enough, governance lapses are giving a sad twist to the ongoing revival story at Yes Bank. Two of the bank’s directors - Ajai Kumar, non-executive director and Mukesh Sabharwal, non-executive independent director, resigned citing personal reasons, while there are fears that the promoter Rana Kapoor may attempt to gain a backdoor entry into the bank’s operations.
Though the banking regulator’s move appointing former RBI deputy governor R Gandhi on Yes’ board is somewhat reassuring, investors however, sense tougher times ahead anticipating bleak earnings stretching over a few quarters. As it is, given the eroding networth at about Rs 26,904 crore, Gill may have a bigger challenge with raising capital, though several believe now may not be the right time given the current valuations. If earnings remain weak in the coming quarters, in the absence of fresh capital, the bank’s woes will further worsen, delaying the recovery to normalcy.
With traders dumping the stock, Yes Bank lost its spot as one of the country’s 10 most-valued lenders in terms of market capitalization. Recently, brokerage UBS India cut its target price by over 47 per cent with a sell rating on the stock citing weak earnings. “We estimate revenue growth will be below 10 per cent in next two years as the business model shifts away from a high upfront fee business. We expect fee income to decelerate and margins to narrow sharply in FY20-21. Higher NPL formation and a shift towards low-yield business are likely to impact fee/margins adversely,” it said.
Capital worries
With the bank’s networth steadily eroding, currently at around at about H26,904 crore, Gill may have a bigger challenge with raising capital, though several believe now may not be the right time given the current market valuation