May 31, 2023

Yes Bank: Sinking Into A Morass

By A Special Correspondent

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Yes Bank shares tumbled nearly 13% to close at Rs 85.90 today. This has been a steep fall from the price a year ago which was ruling at Rs 404. The nearly 80 percent fall in a year has meant that Rana Kapoor, the co-promoter of the 4^th largest bank in India, has lost about Rs 7000 crore on his 10 percent holding in the bank.

The drop in price on Thursday was due to the fact that the bank reported quarterly earnings on Wednesday that showed that its bad loan ratio had widened even as the capital buffers had weakened considerably. This created panic selling in the market, leading to a rout. The slide is expected to continue as analysts in financial service firm Jefferies have downgraded the price forecast for the bank from Rs 80 to just Rs 50 saying that the current results are "far worse than we had anticipated".

Yes Bank was pulled up by the RBI over its bad debt accounting policies in 2018. The apex bank trimmed the tenure of MD & CEO Rana Kapoor and asked him to step down by January 31, 2019. The Board of the bank selected ex-MD of Deutsche Bank, Ravneet Gill and his appointment was approved by the RBI. But ever since the RBI intervention, the bank's shares have taken a beating at the bourses as reports came out tumbling that the bank had window-dressed its balance sheet.

Although Ravneet Gill has now said that asset quality troubles have peaked and that the house is back in order, the erosion of capital buffers means that there is more, and serious, trouble in store for the bank. It has to raise capital and since share prices are going south, it will be extremely difficult. A watchlist that has Rs 10000 crore of potentially stressed loans and a book of Rs 29000 crore below-investment-grade exposure do not make for a very rosy picture. Gill's business acumen and experience alone will not be enough to lift Yes Bank from the morass it seems to be sinking into.