Yes Bank sees sharp recovery after management clears the air on succession plan

After seeing a sharp 7 percent fall in morning trade on Monday on the back of its debt instruments being placed on credit watch, Yes Bank stock has seen a sharp recovery.

CARE Ratings put its instruments under 'credit watch with developing implications' on account of the recent development where the banking regulator restricted the tenure of the current Managing Director and Chief Executive Officer (MD & CEO) Rana Kapoor, till January 31, 2019.

Senior and Tier II instruments issued by the bank, which were upgraded to CARE AAA with Stable Outlook from CARE AA+ on July 5, 2018, now carry a rating of "CARE AAA (credit watch with developing implications, analysts at the ratings firm wrote in their report.

The stock has plunged 46 percent in September as investors have been cautious due to RBI's intervention on Kapoor's tenure. He will now serve till January 30, 2018 against the previous, proposed three-year extension.

The recovery in the stock has also come in the light of news that two external experts of 'Search and Selection Committee' will be finalised by October 7, 2018.

Here is an excerpt of the press statement:

1. Succession Planning: The Bank is fully geared for the MD&CEO’s succession

a) Pursuant to the Board of Directors meeting dated September 25, 2018, the two external experts of the ‘search and selection committee’ will be finalized by October 7, 2018.

b) ‘Search and selection committee’, assisted by a global leadership advisory firm, will evaluate both internal and external candidates and make suitable recommendations to the Board of Directors for onward submission to RBI.

c) The ‘search & selection committee’ and the Board of Directors are fully committed to expeditiously completing the said process within the current stipulated timelines of RBI.

2. Executive Directors:

Further to the Board of Directors' recommendation in the meeting dated September 25, 2018, to appoint two senior leaders of the Bank as ‘Executive Directors’, the bank has submitted its application to RBI for their approval.

3. Business Update – Key Parameters:

a. Satisfactory financial position as on September 30, 2018 (Unaudited Q2FY19):

i. Deposits grew 41.0 percent on a YoY aggregating Rs 2.23 lakh crore as on September 30, 2018. CASA Ratio stood at 33.8 percent (growth of 28.2 percent YoY).

ii. Loans and advances grew by 61.5 percent on a YoY basis, across the Corporate, IBU, MSME and Retail segments, aggregating to Rs 2.40 lakh crore as on September 30, 2018, of which domestic advances aggregated to Rs 2.20 lakh crore (growth of 56.4 percent YoY)

iii. Gross NPA at 1.35 percent of Gross Advances vis-à-vis 1.82 percent as on September 30, 2017.

b. Outlook on Asset Quality is ‘Stable’:

Over the past few days, some unfounded speculations regarding the Bank’s asset quality have been brought to its notice. In this context, the management has clarified that the asset quality continues to be stable. It reiterates that its credit cost guidance at 50-70 bps for FY19 (76 bps for FY18).

c. Comfortable Liquidity / Funding Position:

The Bank has a liquidity coverage ratio of 101 percent as on September 30, 2018, which is 11 percentage points in excess of the minimum regulatory requirement of 90 percent.