YES Bank records sharpest ever intra-day rally, surges 58% in a weak market

The management said the Bank's near term focus will be on deposit mobilization, retail loans including MSME, cost optimization and acceleration in the resolution of stressed assets

Shares of YES Bank recorded their sharpest intra-day gain -- 58 per cent -- to Rs 40.40 on the BSE on Monday in an otherwise weak market after the Union Cabinet approved the reconstruction of the crisis-hit private sector lender as per the scheme proposed by Reserve Bank of India (RBI).

At 10:34 am, YES Bank was trading at Rs 38.85, up 52 per cent against its previous day’s close of Rs 25.55 on the BSE. In comparison, the S&P BSE Sensex was down 4.8 per cent at 32,483 points. The counter has seen huge trading volumes with a combined 106 million shares changing hands on the NSE and BSE so far.

YES Bank has raised equity capital of Rs 10,000 crore pursuant to allotment of shares to State Bank of India (SBI) and other investors like ICICI Bank, Housing Development Finance Corporation (HDFC) and Axis Bank under the Reconstruction Scheme. SBI shall hold up to 49 per cent stake with a minimum of 26 per cent over the next three years.

There will be a lock-in of three years of a part of the investments made by these banks in YES Bank.  As much as 26 per cent of SBI’s equity investment and 75 per cent of the equity pumped in by other players will be retained in YES Bank for three years. Only those shareholders, who have less than 100 shares in the bank, can sell their entire shareholding.

Moreover, YES Bank also declared its corporate results for the quarter December 2019 (Q3FY20) during the weekend in which it reported net loss of Rs 18,560 crore for the quarter. Net interest income declined 60 per cent year-on-year at Rs 1,065 crore, which was significantly impacted by elevated slippages.

Asset quality deteriorated with corporate gross non-performing lending (GNPL) rising to 30 per cent and SMA & investment stress book (not recognized) at Rs 17,500 crore at 8 per cent of loans. The management hopes to contain slippages for FY21 less than 5 per cent.

The management said the Bank’s near term focus will be on deposit mobilization, retail loans including micro, small and medium enterprises (MSME), cost optimization and acceleration in resolution of stressed assets.

“We, however, believe that the probability of overshooting the target remains high and despite non-performing loans and advances (NPL) coverage ratio of 73 per cent, credit cost could stay elevated and weak operating metrics could keep losses continuing and even if the bank turns profitable it would remain sub-optimal for the next couple of years. Key for the bank would be to restore depositors' faith,” analysts at Antique Stock Broking said in result review.

Asset quality numbers look catastrophic. Higher provisions also resulted in violation of RBI capital adequacy norms. With slippages’ guidance of 5 per cent until FY21, any respite in credit cost, and thereby profitability, is unlikely in the near term, analysts at Elara Capital said in quarterly update.

Analysts at Nirmal Bang Institutional Equities estimate that the bank will need another Rs 6,500- Rs 7,000 crore to address provisioning requirements as well as growth. "Even if fundamentals were to improve, we believe the lock-in of three years on 75 per cent shareholding will prevent the same from getting fully reflected in the stock price," the brokerage firm said in result update.