Mumbai: Shares of Yes Bank Ltd on Friday tumbled over 34%, its steepest fall ever, as brokerages downgraded the stock and cut its target price after the RBI denied a three-year extension to its chief executive officer Rana Kapoor and asked him to step down after 31 January 2019. In intraday trade, the Yes Bank stock fell as much as 34%, its steepest fall since listing, to Rs 210.10 a share—a level last seen on 24 June 2016. So far this year, the stock has declined 17.17%. At 10.25am, the stock was trading at Rs 256.20 on BSE, down 20% from its previous close, while the benchmark Sensex was up 0.76% at 37,402.23 points.
Brokerage firms Goldman Sachs, Nomura Research, Citigroup and IDFC Securities have downgraded the stock and slashed their target prices. Goldman Sachs lowered its rating to neutral from buy and reduced its target price to Rs 300 from Rs 383 a share. Nomura Research downgraded the stock to neutral from buy and reduced its target price to Rs 345 from 500 earlier. Citigroup cut to sell from buy and slashed its target price to Rs 270, down 39% from its earlier target. IDFC Securities has decreased its target price to Rs 230 a share from Rs 350 a share.
Yes Bank late on Wednesday announced in a notice to the BSE that “RBI has intimated that Rana Kapoor may continue as the MD & CEO till 31 January 2019, and the Board of Directors of the Bank are scheduled to meet on September 25, 2018 to decide on the future course of action”
“Kapoor was central to the bank’s business strategy. His absence will slow down loan and fee growth for the bank which could lead to a sharp fall in valuations. It could also impact Yes Bank’s ability to raise high net worth deposits. More importantly, Yes Bank needs fresh capital given its strong loan growth, which will be difficult to raise after this event”, said IDFC Securities in a 19 September note to its investors.
This will be the second time when an Indian bank chief has failed to get an extension which was approved by shareholders. Earlier, Axis Bank Ltd’s chief executive officer Shikha Sharma was denied an extension request by the RBI. Another CEO of ICICI Bank Ltd—Chanda Kocchar is being probed for alleged irregularity in loan approvals.
Rana Kapoor’s leadership came into question after the RBI pointed out discrepancies in Yes Bank’s non-performing assets, the difference between what the bank reported and what the banking regulator found.
On 18 April, 2017, RBI asked all banks to make suitable disclosures wherever the additional provisioning requirements assessed by the RBI exceeded 15% of the reported net profit for the reference period, or if the additional gross NPAs identified by the RBI exceeded 15% of the reported incremental gross NPAs.
“Near-term uncertainties around the RBI’s reluctance, new leadership and capital-raising will weigh on the bank’s valuation.
Hence, we are pruning the target multiple (to 2.5x from 3x FY20 earlier) and revising the target price. However, the strong foundation laid over the years and a well-experienced second-line management should help sustain the superior RoE profile”, said Edelweiss Securities Ltd in a note.
Nomura has cut its earnings growth estimates for the next two years to 20%, and sees increases in credit costs by up to 100 basis points. It has reduced the target multiple to 2.1x for fiscal year 2020.
Brokerage firm Jefferies India believes that “we do not subscribe to the view that without Rana Kapoor there is no future for this systemically large bank, or that its financials have been cooked up. CET 1 is low but we do not see a material growth slowdown. More clarity is needed, and we do have questions, but we are not panicking”. The firm has maintained its buy rating but cut its target price to Rs 365 a share from Rs 445.
Of the analysts covering the stock, 39 have a buy rating, nine have a hold rating, while four have a sell rating, shows Bloomberg data.