Why Yes Bank Shares are Falling?

Why Yes Bank Shares are Falling?

Yes Bank, India’s fourth largest private sector bank was founded by Ashok Kapur and Rana Kapoor in 2004. It operates as a private bank with subsidiary functions of retail banking and asset management. Yes Bank operates under 3 distinct entities which are: Yes Bank, Yes Capital and Yes Asset Management.

Yes Bank launched its IPO at an issue price of Rs 45; way back in May 2005. Yes Bank is listed on BSE and NSE, while bonds are listed on London Stock Exchange. Take a look at the 3 largest share holders of Yes Bank in March 2018.

Foreign Portfolio Investors – 43% Insurance Companies – 14% Mutual Funds including UTI – 10%.

Now, Yes Bank is no small bank. It has plenty of rewards and recognition like India’s fastest growing bank of the year award at Bloomberg UTV Financial Leadership Awards 2011; YES BANK has been Ranked No. 1 for exemplary performance in Digital Payments across public, private, foreign, and payment banks in India by Ministry of Electronics and Information Technology.

In July 2017, the Board of Directors approved a split in Yes Bank shares at 1:5.

The shares which were trading at around Rs 1,880 were available at under Rs 400 a share. Yes Bank hit a 52 week high of Rs 404. Now, it’s closer to the 52 week low of Rs 68.75. So, why are Yes Bank shares crashing?

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Why Yes Bank Shares are Falling?

Yes Bank has been in the news for all the wrong reasons. In April 2018, RBI raised issues of corporate governance and other serious lapses with the functioning of Yes Bank.

The RBI had asked Yes Bank to put an end to Rana Kapoor’s tenure as Managing Director and CEO on 31st January 2019. Yes Bank had sought a 3-year extension for Rana Kapoor till 31st August 2021.

Yes Bank then appointed Ravneet Singh Gill as MD and CEO; to succeed Rana Kapoor on March 1st 2019. His tenure as approved by the RBI was from March 1st 2019 to February 28th 2022. (This is 3 years from the joining date).

See Also: Types Of Investment Plans Why Yes Bank Shares are Crashing?

Yes Bank in July 2019; reported a sharp plunge in Q1 net profits by 91% on a yearly basis to Rs 114 Crores. The reason for this was a mark to market provisions of Rs 1,109 Crores.

Yes Bank asset quality saw a massive decline during the June quarter with gross NPA’s ratio (This is bad loans as a percentage of gross advances) spiking to 5.01%. It was just 1.31% in the same quarter last year. The Net Non Performing Assets or NPA’s expanded to 2.91% during the June quarter; compared to just 0.59% from the corresponding quarter last year.

Take a look at this figure: The bank’s absolute gross NPA stood at a massive Rs 12,092 Crores for Q1FY20 against Rs 2,824 Crores in Q1FY19.

Then another problem: The foreign brokerages like CLSA, JP Morgan and Nomura slashed price targets on Yes Bank Stock to Rs 110. Morgan Stanley set the stock price target at Rs 95, Credit Suisse at Rs 94 and PhillipCapital at Rs 85, Jeffries at just Rs 50.

The Bloomberg Billionaire Index showed that the founder of Yes Bank, Rana Kapoor, lost $1 Billion. Yes Bank stock lost 78% between August 2018 and July 2019. Rana Kapoor net worth fell from $377 Million from $1.4 Billion.

See Also: Best Investment Plans for 2019 Yes Bank Raises Rs 1,930 Crores QIP at Rs 83.55 a Share: On August 14th; Yes Bank closed the qualified institutional placement (QIP) totaling Rs 1,930 Crores; at an issue price of Rs 83.55 a share. The issue price was at a discount of Rs 4.35 to the floor price set at Rs 87.90 a share.

Now, why did Yes Bank launch the QIP? Yes Bank wanted to raise Rs 2,000 Crores by selling its shares through the QIP. The success of the QIP was crucial to the very survival of the bank.

Ravneet Gill, the Yes Bank MD was pleased with the success of the QIP. It was oversubscribed 3 times. Many were first-time investors including US-based Key Square Master Fund and a very large Indian Fund.

What’s the Problem with Yes Bank? o o o

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The rise in bad loans and weak capital is a big problem with Yes Bank.

There has been a sharp rise in slippages (If a performing advance becomes an NPA the account has slipped).

Provisioning has eroded the bank’s earnings over the past year. (Banks set aside money from Profits to compensate a probable loss caused by lending which is called Provisioning).

Yes Bank’s Tier I capital adequacy ratio was 10.7% for the June quarter against the 8.875% regulatory requirement. The problem is with CET 1 capital (Common Equity Tier-1) which was 8% against the regulatory requirement of 7.375%. Raising capital was critical for the bank and it raised funds through the QIP. Why is the Market Disappointed with Yes Bank?

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Yes Bank’s market capitalization has fallen by more than 21,000 Crores since May. Yes Bank had a board meeting on April 26th where it planned to raise $1 Billion.

After the steep fall in market capitalization; Yes Bank raised just $275 Million in the QIP. So why did Yes Bank not raise $1 Billion? If Yes Bank had raised $1 Billion there would have been a steep dilution in equity as floor price of QIP was Rs 87.9 a share.

The Yes Bank’s CET 1 ratio was 8%. After the infusion of additional funds from the QIP; the CET 1 ratio would inch up to 8.6%. Now, the bank would need more capital real soon. This means a further equity dilution and this has made the market really cautious.

Finally, Yes Bank enjoyed stellar growth in loans. There was a robust 30-50% growth in the past 2-3 fiscal years. Loan growth was 18.7% in the March quarter. It was just 10% in the June quarter.

See Also: Financial Planning: Do it Yourself?

Yes Bank Shares Crash The shares of CG Power and Industrial Solutions lost one-fifth of their value as they hit the lower circuit of 20% on August 20th. CG Power and Industrial Solutions was controlled by the business tycoon Gautam Thapar who is the founder of Avantha Group.

CG Power and Industrial Solutions faces corporate governance issues. Some assets of the Company were offered as collateral without due authority. The Company was made a guarantor to an unrelated third party to get loans without authorization. The Company’s net worth was understated due to un-authorized and inappropriate writeoffs and charges debited to the profit & loss statement in FY18 and FY17.

So, what has Yes Bank got to do with all this? Yes Bank owns 12.79% stake in CG Power and Industrial Solutions. Yes Bank shares tanked 6% to Rs 72 in yesterday morning’s trade. Now, Yes Bank has tanked 5% to a 52-week low of Rs 67.55.

Yes Bank is more than 15% down against the QIP price.

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