Macquarie says its Yes Bank assessment 'all wrong', downgrades stock

Macquarie flagged concerns on the fee income and retail franchise of Yes Bank after the bank reported its first-ever loss.

Australian brokerage Macquarie said on Monday its assessment of Yes Bank's structured finance business was "all wrong" and downgraded the bank's stock to "underperform".

Macquarie flagged concerns about the fee income and retail franchise of Yes Bank, citing management commentary after the lender reported its first-ever loss of a whopping Rs 1,506-crore for the March quarter under a new management led by Ravneet Gill.

Yes Bank, India's fifth largest private lender, had booked a net income of Rs 1,179 crore in the year-ago period. Rana Kapoor, the bank's managing director and chief executive, was forced out by the Reserve Bank earlier this year for allegedly under-reporting bad loans and for poor governance.

"We must eat the humble pie today and admit we underestimated the risks in structured finance. We got the call wrong," Macquarie said in a note, adding that over the past eight years it had assesses that the bank can thrive in a risky business like structured finance.

The brokerage also announced a double-downgrade of the Yes Bank stock to 'underperform' and slashed the stock price a low Rs 165 over the next 12 months, as against Friday's close of Rs 237.40.

The bank reporting a three-times increase in BB-rated and below accounts despite a higher slippage of Rs 3,408 crore in the quarter is a negative surprise, the brokerage said, adding the sharp decline in fee income due to changes in accounting practices is also a concern.

Moreover, new chief executive Ravneet Gill's revelation that only 30 percent of Yes Bank's 1,100-odd branches are profitable dampens the fundamental view on the bank, the brokerage said.

The Yes Bank team has guided towards a watch-list of Rs 10,000 crore, credit costs of 1.25 percent down from 2.2 percent in FY19 and a 20-25 percent loan growth led by retail and small businesses apart from a 50 percent decline in corporate fee in the next three years, the brokerage explained for its view on its once-top pick stock.

The brokerage said the experience of Axis Bank, where the actual slippages came in at 1.2 times the original guidance, is among the factors making it more nervous in regard to Yes Bank.

A media report Monday had said more analysts expect pressure to mount on the Yes Bank stock Tuesday because of the poor numbers reported Friday.