Yes Bank’s investors are desperate for a buyer amid fears of a massive quarterly loss


  • Yes Bank is expected to post as much as ₹500 crore loss tomorrow according to a Kotak Equities report.
  • Since March this year, as much as 50% of the bank’s value was shaved off. This was after the banking regulator insisted that its founder Rana Kapoor step down.
  • YES Bank’s exposure in Anil Ambani Group companies stands at around 2.9% of its loan book.
  • Its exposure to the DHFL, Indiabulls and Essel groups combined exceeds around 4% of the gross loan book.

Yes Bank is expected to post as much as ₹578 crore loss tomorrow according to a Kotak Institutional Equities report, as it declares it quarterly earnings. In spite of this, today its stock rallied by 11.4% on rumours that it has received an offer from an international private equity investor.

This is light at the end of the tunnel. Since March this year, as much as 50% of the bank’s value has been shaved off. This was after the banking regulator insisted that its founder Rana Kapoor step down over allegations that it has not been disclosing the bad loans on its books accurately.

Understandably, brokerages have all but given up hope.

“YES has dug itself into a hole. Its stock price has breached levels we would not have previously anticipated in any rational or logical assumptions, and now trades materially below our last published downside price,” said a report by Jeffries equity report.




Toxic Exposure

Oil baron Paul Getty once famously said that, “If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem”.

And, Yes Bank has a lot of problems from a lot of groups who are slipping down a slippery slope. Some of their notorious creditors include housing finance company Dewan Housing Finance Limited (DHFL), which has declared recently that it might not be able to survive as a going concern.

Yes Bank also has a lot of exposure to Anil Dhirubhai Ambani Group (ADAG), many of whose companies like Reliance Capital and Reliance Home Finance have gone through rating downgrades aside from auditors pointing out problems with the books of Reliance Infrastructure and
Reliance Capital
. Around half of Yes Bank’s loans to the construction sector are with ADAG projects, linking its fate with the troubled group.

“YES Bank’s exposure in ADAG group stands at around 2.9% of loan book as per recent Ministry of Corporate Affairs (MCA) filings. Apart from this, the bank’s exposure to the DHFL, Indiabulls and Essel groups combined exceeds around 4% of gross loan book,” said a report by Elara Securities.

Repairing the bank
Like many top banks including SBI, changing the management is expected to do the trick. The new management led by Ravneet Gill has been working towards bringing in new investors. However, the bank management refuted rumours of a possible deal reported in the media today.

“The bank in its ordinary course of its business continues to explore various means to raise capital, funds through issuance of securities to diverse set of investors, in order to meet its business, regulatory requirements,” the bank told the stock exchanges.

According to Elara, a stake sale would instill confidence. They are also watching how the bank can grow, as ‘repair work’ is in progress, as there would be less room for credit growth as its books are cleaned. But new capital coming into the bank can change that. And, brokerages expect the management to walk the talk.

“Not surprisingly, management assurances have helped little. Upside rationale, if any, completely hinges on the bank's ability to raise capital. Clearly there's more than meets the eye, perhaps a limited clean up of asset quality issues, something we had alluded to in our earnings assessment, keeps the street on the edge,” said Jeffries.



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