One of India’s largest private banks has lost more than half its market value in 37 days
- Yes Bank, which is India’s third-largest private sector lender, has lost more than half its
market valuesince 20 August as it deals with succession and compliance issues.
- On 20 September, the
RBIrefused to extend the tenure of Yes BankCEO Rana Kapoor’s term, which precipitated a dramatic crashin the bank’s share price.
- Following a risk review by the RBI last year, it came to light that Yes Bank had underreported ₹63.6 billion worth of non-performing loans.
Yes Bank, which is India’s third-largest private sector lender, has lost more than half its market value since 20 August - from ₹910 billion to ₹438 billion-, as its share price has been in a freefall. Investors feared that the RBI would not approve the extension of the
Those fears were confirmed last week, when the RBI refused to extend Kapoor’s term, capping it at 31 January 2019, which precipitated a dramatic crash in the bank’s share price. On 20 September, when the decision was announced, the bank’s stock fell by a whopping 29% as the fears and uncertainty over its future leadership became compounded. That marks a loss of over $3 billion in market value on one day alone.
Rana Kapoor founded the bank in 2004, steering it towards a dramatic rise in the ensuing decade. However, in his quest to expand the bank’s operations and loan book at a rapid pace, a number of issues were overlooked. Following a risk review by the RBI in October last year, it came to light that Yes Bank had underreported ₹63.6 billion worth of non-performing loans.
There were also allegations that the bank had direct dealings with a trust run by Kapoor’s family and that it had window-dressed some of its large corporations to look financially stronger than it actually was. As the country grappled with a bad loan crisis, the RBI wasn’t in a forgiving mood.
Since then, the future of Kapoor has been under intense speculation. Earlier this year, the RBI also refused to clear a three-year extension of the tenure of Shikha Sharma, the CEO of Axis Bank, as the bank dealt with its own host of bad loan calculation problems.
To reassure investors and stabilise its share price, Yes Bank could have announced a successor for Kapoor this week. However, on 25 September, it wrote to the RBI again asking the regulator to reconsider its decision to trim Kapoor’s tenure, asking for an extension till September 2019. The RBI is expected to decline the bank’s request.
That being said, the bank has set up a search committee to find a replacement for Kapoor. In addition to this, their immediate priority should be to draw up an effective turnaround plan in order to limit any further damage to their market cap.