Is RBL Bank going YES Bank’s way? Not really

Investors in the banking space, especially the private ones, have been facing a tough time lately. Take YES Bank for instance. In 2018, it ranked 61 on the Fortune India 500 list; it is India’s 13th-largest bank. However, in just 120 trading sessions between April 3, 2019, and October 1, 2019, the YES Bank stock fell from its 52-week high of ₹285.9 to a 52-week low of ₹29.05—losing nearly 90% of its value.

Investors think RBL Bank is next. Ranked 243 on the Fortune India 500 list of 2018, it is India’s 40th-largest bank. On October 23, at the day’s low of ₹230.55, the RBL Bank stock recorded its newest 52-week low. From the 52-week high price of ₹716.55, on May 28 this year, it has lost over 67.8% in value in a matter of 99 trading sessions. It would not be surprising if RBL Bank is likened to YES Bank in terms of erosion of shareholders’ value. But data tells otherwise.

For financials, we went back 17 quarters. For the quarter ended September 2015, YES Bank recorded a standalone income of ₹3,797 crore compared to RBL Bank’s ₹776.7 crore. Over the following quarters, YES Bank’s income grew 2.3 times in absolute terms to ₹9,088.8 crore in September 2019, while RBL Bank’s revenue grew over 3.3 times to ₹2,567.7 crore. In September 2015, while RBL Bank’s income was 20.5% of YES Bank’s income, it grew to 28.3% in September 2019.

In terms of standalone net profit too, RBL Bank has an edge over YES Bank as the later posted its highest ever loss of ₹1,506.6 crore in the quarter ended June 2019. At ₹113.8 crore, YES Bank’s profit for the quarter ended September 2019 is little over 20% of its profit of ₹551.2 crore in the quarter ended September 2015.

On the RBL Bank’s part, ₹54.3 crore profit for the quarter ended September 2019 is over 79% lesser than its June 2019 quarter profit of ₹267.1 crore. In absolute terms, the September 2019 quarter profit is little over 81% of its September 2015 profit of ₹66.9 crore. Proportionally, RBL Bank’s quarterly profits were in the range of 12% to 16% until September last year, and have inched up in the range of 23% to 47.7% lately.

On the non-performing assets (NPAs) front, RBL Bank has a relatively better scorecard in comparison to YES Bank. On absolute comparison, YES Bank’s gross and net NPAs grew by 32.8 times and 64.5 times from ₹368.1 crore and ₹106.7 crore each in September 2015, to ₹12,092.1 crore and ₹6,883.3 crore in September 2019, respectively.

RBL Bank, on the other hand, saw its gross and net NPAs rise 9.5 times and 11.1 times each from ₹161.6 crore and ₹82.2 crore in September 2015, to ₹1,539.1 crore and ₹912.3 crore, respectively, in September 2019. Also, in proportional terms, while RBL Bank’s gross and net NPAs averaged around 13% of YES Bank’s, the proportion of gross and net NPAs averaged over 34% and 55% between September 2015 and June 2017.

In terms of gross and net NPA as a percentage of advances; YES Bank’s respective ratios grew from 0.46% and 0.13% in September 2015 to 5.01% and 2.91%, respectively, in September 2019. On the other hand, RBL Bank’s respective ratios increased from 0.93% and 0.48% in September 2015 to 2.6% and 1.56% in September 2019.

While there is an element of scale involved, but on an average, RBL Bank’s gross and net NPA ratios were nearly 1.48 times and 2.37 times that of YES Bank’s ratios between September 2015 and June 2017. Over the last four quarters, RBL Bank’s average gross and net NPA ratios are 0.46 times and 0.58 times that of YES Bank’s ratios.

Finally, on the share price front, we took monthly average share prices since September 2016 in line with RBL Bank’s initial public offering and listing since August 31, 2016. On absolute terms, while the S&P BSE Sensex and S&P BSE Bankex have grown over 39.8% and 50.8%, respectively, until October 22, the adjusted closing price of RBL Bank has fallen just 1.5% compared to YES Bank’s 79.4% decline in the same period.

In terms of monthly average market capitalisation (m-cap), RBL Bank recorded an absolute growth of 14.7% at ₹12,354 crore in September 2019 from ₹10,774 crore in September 2016. On the other hand, YES Bank’s m-cap of ₹13,211 crore in September 2019 is 75% lower than its m-cap of ₹52,887 crore in September 2016.

During the 38 months from September 1, 2016, to October 22, 2019, July 2018 recorded the highest monthly average m-cap for YES Bank at ₹84,850 crore, while September 2019 recorded the lowest m-cap at ₹10,571 crore—an erosion of over ₹74,279 crore or 87.5% in absolute terms within 15 months.

In comparison, RBL Bank saw its lowest monthly average m-cap in September 2016 at ₹10,774 crore, and the highest m-cap in May 2019 at ₹29,328 crore—an absolute growth ₹18,554 crore or 14.7% within 33 months.

A look at the above fundamental and technical parameters shows such comparison doesn’t hold.

However, this does not take away the fact that RBL Bank is traversing through challenging times. Citing the sharp rise in ‘anticipated’ stress (up nearly 80% in a quarter), Darpin Shah and Aakash Dattani, analysts at Mumbai-based HDFC Securities, expect significantly higher credit costs ahead, denting RBL Bank’s return on average assets till FY21.

“We find this trend rather alarming and asset quality seems perched on a slippery slope,” Shah and Dattani noted in their October 23 report. The duo also notes that reflexivity will increasingly play out here, with the bank’s future prospects being dependent on fund raise (not factored in their estimates). “While a full-blown implosion is not yet apparent to us, we are compelled to cut valuation multiple to 1.50 times versus 2.0 times earlier,” the duo added as they maintained a ’neutral’ recommendation with a target price of ₹294 a share.

What catches the eye is that HDFC Securities has changed its recommendation from ’buy’ on July 10 to ’neutral’ on July 22 where the target price was reduced from ₹803 to ₹512. Subsequently, while the recommendation has remained ’neutral’, the target prices have changed to ₹522 on September 22, to ₹428 on October 9, and finally to ₹294 on October 23.

Investor concerns already reflect in the stock price which closed at ₹259.25 on October 23, lower ₹27.65 or 9.64% than the October 22 closing price of ₹286.9 a share.