)
The battle between YES Bank and the global financial services giant, UBS, has taken a new turn, with the former complaining to the market regulator, the Securities and Exchange Board of India (Sebi), against a UBS report which said YES Bank lent almost 125 per cent of its own net worth to stressed companies. Analysts said instead of YES Bank making a "panicky and immature response" to the report, it should make all the facts public.
"The stock markets are quite democratic in nature and any research house can give 'Buy' or 'Sell' recommendation based on its own reading of facts. But to take them to court or complaining to the regulator just shows the poor and panicky response from the bank management," said an analyst with a foreign brokerage, asking not to be quoted.
Analysts say this is not the first time any company has threatened and taken action after a negative report. Earlier, Indiabulls sued Canada-based research firm Veritas in connection with an alleged defamatory report in 2012 and charged Veritas of extortion. This was after Veritas had come out with a negative report on Indiabulls.
In 2011, Veritas had also come out with a prophetic report on Kingfisher Airlines warning that Vijay Mallya-owned airline is headed towards bankruptcy. The report was slammed by Mallya in a news conference. A year later, the airline shut shop, taking down Indian public sector banks' Rs 7,000 crore with it. There are numerous examples of analysts indicating weaknesses in the management, operations or in the corporate governance in Indian companies. But rarely has any company reacted like YES Bank. Another report by Veritas on DLF was also proved correct.
The UBS report said YES Bank had the highest share of loans backed by unlisted shares and current assets (23 per cent) and added the bank is most vulnerable to a large corporate default. The report was based on YES Bank's filings with the Registrar of Company Affairs. UBS also revised the price target of YES Bank downwards to Rs 740 from its earlier recommendation of Rs 1,000 a share. On Tuesday, YES Bank shares closed at Rs 812.
According to a UBS analyst, the total loan approvals by public sector banks like Punjab National Bank and some private sector banks such as YES Bank and ICICI Bank have increased significantly over FY14-15.
In response, YES Bank said the report had exaggerated the exposure of the bank to stressed companies given the RoC filings were dated and do not reflect the actual disbursement. In its filings with the stock exchanges, YES Bank said UBS did not seek its views before coming out with the report.
Analysts said it would be interesting to get the views of independent directors of YES Bank and the Reserve Bank of India on the entire matter considering that YES Bank's response to the UBS report is "panicky". "They should bring out all the facts to the media. The bank enjoyed the trust of analysts, which is evident from the 50 per cent rise in its stock price in one year. But to react like this to a negative report is not good," said another analyst.
UBS said it follows a robust process for producing independent research. "While UBS has no comment on any specific matter, it has a robust process for producing independent and high-quality research and is committed to complying with all laws and regulations in the jurisdictions in which it operates," said a UBS spokesperson.
