MUMBAI: Uncertainty over another three-year term for Rana Kapoor as the CEO of YES Bank spooked investors. YES Bank shares fell 5.1 per cent to Rs 343.40 after the bank said late Thursday that Reserve Bank of India has given permission for him to continue only until further orders.
Brokerages have not changed their ratings in general on the bank but are factoring in volatility till clarity emerges on Kapoors role as CEO.
“The RBI has left the Street hanging on Rana Kapoors reappointment,” said Jefferies in a note. “We hazard a guess, but in our opinion, the reappointment may not be a clean one, and while all the options are possible, the Street is likely to react negatively to this uncertainty.”
The US-based brokerage continued with a buy rating but noted “the downside catalysts” that have triggered from the central banks move.
While the YES Bank board recommended a three-year term for Kapoor, the RBI did not put its stamp of approval. But the board recently wrote to the RBI clarifying on issues that the regulator had raised in regard to another term for Kapoor.
Analysts said it is safe to wait and watch for further clarity from the banking regulator, but advised investors to be cautious on buying the stock.
Macquarie, a brokerage, believes that Rs 300 could be the bottom. “If Rana gets reappointed for 3 years and they manage to raise money, stock could be at Rs 500,” Suresh Ganapathy, analyst at Macquarie, said in a note. “So what should you doRs Wait for his reappointment…It is OK to miss the 10-15 per cent rally and then get into the stock…We seriously dont know what RBI will do…A one-year extension also wont be a good thing.”
Ganapathy said anything short of a full 3-year term was going to be taken negatively by investors.
“In the low probability event that RBI asks Rana Kapoor to step down, it would be a significant negative for the stock. Despite how institutionalised YES Bank has become in processes & management strength, the market sometimes does not differentiate between the founder CEO and the bank. Planned $1-bn QIP at the end of the year (and thereby future growth) would also go in a limbo,” Ganapathy said.
Analysts are speculating that the divergence in bad loans classification may be the reason behind RBIs decision.
“RBI had been quite vigilant on these divergences in the asset quality review (AQR) for all banks,” ICICI Direct said in a note. “The central bank acted against providing longer-term extension to the top management in one of the cases in the recent past. Accordingly, a last moment notification regarding no clear extension time line for the MD & CEO of YES Bank creates ambiguity over the extension of the future term.”
YES Bank had reported a divergence of Rs 4,176 crore in FY16 and Rs 6,355 crore in FY17.
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