RBI’s ‘No’ to YES Bank costs it dearly

YES Bank’s long-time punch line, ‘Say YES to Growth’, is under dark clouds for its shareholders, as the bank’s share prices tanked over 34% on Friday, at Rs 210.1 a share, compared to its previous close of Rs 318.5 on September 19. Thus, its market capitalisation fell to ₹48,443 crore, from ₹73,436.9 crore a day earlier, calculated at the 52-week low price.

The reason for the fall (of ₹24,993.9 crore) was investors’ reaction to the Reserve Bank of India (RBI) deciding to end the tenure of YES Bank’s managing director and CEO, Rana Kapoor, on January 31, 2019. The fall in share prices has cost Kapoor and YES Capital (India) Private Limited, both listed among promoter shareholders, a notional loss of ₹1,084 crore and ₹819.8 crore each with their respective shareholding of 4.34% and 3.28% in the bank as of end-June 2018.

In a reaction note on the development, CGS-CIMB Securities pointed out that YES Bank under Kapoor’s leadership witnessed robust profitability and significant improvement in its share in the loan market. Siddharth Teli and Dhiren Shah, both analysts at CGS-CIMB, wrote: “We believe the uncertainty at the top will make investors jittery in the near term, as it could impact growth prospects of the bank.” The duo have changed their ‘add’ rating on the YES Bank stock to ‘hold’, and also reduced the target price from ₹450 a share to ₹325.

Kotak Institutional Equities, which had a ‘sell’ rating on YES Bank, continues to recommend a sell with a downward revision in the target price from ₹335 to ₹250. The Kotak note, jointly authored by M B Mahesh, Nishchint Chawathe, Dipanjan Ghosh and Shrey Singh, highlights that “as a founding member of the bank, Kapoor has left a deep imprint on strategy, operations and execution, a tough act to follow. It will be interesting to see if the new CEO carries on with the existing strategy (a tough act) or makes adjustments (which would carry a cost).”

Mumbai-based Antique Stock Broking has put the lender’s stock ‘under review’, and Antique’s analysts Sohail Halai and Amit Mishra noted that this (RBI’s action) seems to be a rather tough stance as even the window for transition is short. “In case of Axis Bank, nine months was provided, which helped them for succession planning.”

Clearly, the key-man risk is playing out at YES Bank for now. There are speculations that Paresh Sukthankar, who quit HDFC Bank as its deputy managing director in early August could take on the baton at YES Bank. But that, even if it turns out to be true, is too soon to calm down investor unease. Antique’s Halai and Mishra point out that YES Bank's second line of leadership has strong abilities. “But Kapoor had been a key decision maker and premium attached to it may vanish.”

At end of the trading day, YES Bank closed lower by ₹91.45 ( down 28.71%) at ₹227.05 a share on the BSE.