Yes Bank is India’s 4th largest private sector bank. The company’s exposure to crippled entities in infrastructure, airlines and real estate sectors such as IL&FS, DHFL, ADAG,etc. has resulted in the company posting lack luster results since the past few quarters. As a result, In Q4FY19 the Company reported a loss of Rs. 1507 crores.
As of FY19, the management had indicated that they had Rs.10000 crores in stressed assets for which it has set aside contingency provisions of Rs 2,100 crores. Of this, the bank used Rs 1,399 crores for specific provisioning against NPAs in Q1FY20. They have been writing off these bad debts by increasing the provisions and their net NPA. The question remains that are these the only stressed assets or are they slowly increasing their watch list (the way Axis, SBI & ICICI increased their watch list ever quarter from 2014 to 2016).
In Q1FY20, the lender was back on track with a net profit of 113.76 crores however; their troubles are nowhere near over. During the quarter, their asset quality deteriorated as slippages continue to rise at Rs.4554 crores which resulted in ~50 bps decline in NIM. Cost of funds rose 50bps to 6.8% in Q1FY20. However, their retail loans and SME loans registered 43.3% and 15.2% YoY growth, respectively. Their order book of BB & below bonds rose from 7.1% to 9.4% indicating further stress on asset quality. GNPA rose to 5% (up by 179bps) and while Net NPA ratio rose ~233bps YoY to 2.9%. Lower growth capital & restructuring in corporate book resulted in slower growth in advances. CASA ratio stood at 30.2% due to ~9.5% QoQ decline in CASA deposits.
Recently, ICRA downgraded Yes bank’s long term bond rating citing increase in gross bad loans and BB and below rated exposures along with weakened capital cushions. The rating downgrades, also factors in the further weakening in Yes Bank’s core equity (CET-I) capital cushions with the growth in Risk Weighted Assets and elevated provisioning leading to subdued profitability.
Yes Banks woes increased further in July when it had to invoke the pledge of stressed companies due to loan defaults. The Bank acquired 9.47% stake in Eveready and 18.55% stake (3.27 crores equity shares) in Cox & Kings by invoking pledged shares. It has also acquired 30% stake (34,080 equity shares) in another unlisted travel company Ezeego One Travel & Tours, which is promoted by Cox and Kings. Recently, they also acquired 12.79% of CG power and Industrial solutions. CG power was found guilty for understating its liabilities and advances made to related and unrelated parties, among other financial irregularities. As a result, shares of Yes bank also tanked by 6% today.
Last week, yes bank successfully raised Rs. 1930 crores ($270mn) through the Qualified Institution Placement (QIP) route at Rs 83.55 per share. But that is nowhere near enough in order to recover from the current liquidity crunch and to comply with capital adequacy regulations. The bank will need close to Rs. 4000 crores. According to a livemint article, the company is planning to raise another $600 million from strategic investors to bolster its capital buffers. That means more dilution awaits investors down the road leading to subdued return ratios for reasonable period.
Their deteriorating asset quality, mounting bad loans, increasing credit costs and an eroding capital base will continue to impact the bottom line in the near term.
The stock has lost more than 80% of its value from the highs in the last one year and continues to look week. The bear candle in Sep-18 was the first indication that there was something wrong with the counter. The bounce back to the 290 levels was the last opportunity the stock offered. Most of the stocks give a sharp rally post a steep fall but they are seldom utilized to exit. The size of the bear candle in Sep-18 was clearly hinting at something grossly wrong with the bank. The break of the 61.8% of the entire swing at 138.25 was a confirmation that the counter has entered a bear phase. A further subdivision from the 138.25 to the lows is indicating a strong support for the counter at 60 levels. This is also the bull zone of the counter and hence a strong support. Will the stock hold on to this zone is big question mark. But a break of the zone will definitely take the stock right to the bottom at 10 rupees.