Yes Bank is being Toasted by the Brokerages for Passing RBI Test, Stock Soars
Mumbai: Yes Bank shares spilled to a three month hike after the lender said that the Reserve Bank of India had not found any deviation in its recent reports on bad debts as the brokerages upgraded the stock.
The shares climbed 31% to Rs 221 on the BSE on Thursday, the highest level since November 14, when they ended at Rs 222.50.
Analysts confirmed that the RBI’s report removed an overhang on the bank’s evaluation. JM Financial and Sharekhan updated the bank’s shares others made the predicitions that the stock will continue to experience a rise in the coming days.The RBI’s risk assessment report for FY 18 observed nil divergences in Yes Bank’s asset classification and provisions from the norms, the bank said in a recent statement. Divergence basically refers to the gap between the RBI’s assessment of a bank’s assets and that was being reported by the lending authority.
The RBI report was a surprise in a positive sense for the investors who expected the divergence to remain elevated, in line with the trend of the past two years.
Again gross non-performing assets of Rs 749 crore that were reported by Yes Bank as on 31st March 2016, the RBI’s report showed the assets to be of it to be at Rs 4,926 crore, worth and divergence of Rs Four Thousand One Hundred and Seventy-Seven Crore. For FY17, the bank reported NPAs of Rs 2,018.6 crore, while the RBI adjudged them at Rs 8,374 crore, thus widening the divergence to Rs 6,335 crore.A higher divergence will mean that the bank will provide more for NPAs, that would be impacting its profits. This was considered to be the main reason for the RBI to curtail the tenure of CEO Rana Kapoor last year.
The question of why the RBI ordered Kapoor to go remains unanswered. We believe it is time for the RBI to increase transparency on decisions that have a significant impact on minority shareholders,” analysts at US investment bank Jefferies said. A divergence number that was higher than last year would have been a state of worrying, but a “nil” divergence came as a shock, Jeffries referred in a recent talk.
“We thought that the RBI’s refusal to allow the reappointment of Rana Kapoor as CEO of Yes Bank was a black swan event- indeed, the stock corrected by around 30 percent after the news. However, with the RBI’s audit report is now citing ‘nil’ NPL divergence, we seem to have mistaken a mere crow for a swan,” said Jefferies.
JM upgraded the bank by setting a new target price of Rs 275 for a single share. “We had more cautious on the bank in the second quarter, giving an interim inability to address the gap between perceived asset quality issues and the headline stress ratios, despite its superior loss rates on a predominantly wholesale portfolio. The regulator’s communication that the NPL divergences have been addressed, also give an idea that streaming of portfolio. "
Motilal Oswal said that the RBI’s report gives an account of Kapoor’s performance. “With two of the critical overhangs addressed (management and divergence), we expect the bank to now look at the capital raise issue over the next few months, which will help to drive a gradual improvment.
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