Is it the right time to invest in Yes Bank shares, or will they fall more?

History Snapshot:

Yes Bank, once known for it’s historic returns. August, 2018 was the month where bank’s share price was around 400 per share. Everyone was talking about its success journey and it’s ability to become a next Indusind bank or HDFC Bank in future. Investor’s holding even 100 shares of Yes bank were feeling happy about the company and it’s future growth.

Mr. Rana Kapoor was in lime light and was known for it’s management skills. Everything was great till this time. Once Rs. 10 Share in the year 2005, became Rs. 400 Share in the year 2018 making it a “Rags to Riches story”. Rana Kapoor always terms this share as a “Diamond”.

Current Scenario:

As on October 1st, 2019 Yes bank share touched it’s lifetime low of Rs. 30 per share. What a destruction of investor’s wealth!. No one in the year 2018 thought that this share will become Rs. 30 per share.

What went wrong?

Non Disclosure of NPA’s: Management’s interference in disclosure norms of Non Performing Assets. As per the esteemed media houses, management of Yes Bank especially Rana Kapoor had not disclosed true non-performing assets or bad loans to RBI or under reported the same in financials.

Sharp fall in Share Price: Due to news and speculation in market, share price of yes bank sharply crashed as investor lost faith in it’s well known management. Now, the issue of corporate governance became the major factor for all investors.

Shrinkage of Loan growth: Due to Non Performing assets or bad loans now, yes bank was not able to continue with it’s loan book growth as it was doing earlier from the year 2005 to 2018.

Shrinkage in Current Account and Saving Account deposits Ratio (CASA): In layman’s term there is ratio set by RBI for each bank. If bank’s deposits goes below that ratio then it’s difficult for bank to operate. Generally, CASA ratio is deposits in Saving bank accounts and amount lying in current accounts of customers of Yes Bank, which Yes bank uses it for it’ business.

Rumors about bank: Worst thing which can happen to a banking industry is that people get rumors about closing or shut down of bank and they start removing their fixed deposits, closure of saving accounts, current account. Due to this bank looses its all deposits and business. This is the end of any bank. New’s channels started showing news like bank has stopped withdrawal of fixed deposits from bank in order to maintain their deposits.

Loan Book issues: Yes bank’s loan book had these major companies like DHFL, Indiabulls, ADAG. This created more issues for the Yes Bank as these shares are already under pressure due to some rumors and their financial stability is not good at this time. Rumors are that yes bank may have to take haircut in these companies in order to recover it’s loan. Bank may loose its loan amount given to these companies, resulting into higher provisions and negative quarterly returns.

Selling Pressure: There is a selling pressure in Yes Bank from past few days due to following a) Pledged shares with bank or mutual fund trustees are sold in market to secure debt mutual funds b) Top level employees like President or managerial level who got shares of Yes bank through ESOPs are selling the stock due to insecurity.

What’s Good?

Rana kapoor has left the company amid pressure on account of inquiries from regulators like RBI, SEBI, Etc.

New management of the company is equipped to take efficient decisions with new CEO - Ravneet Gill.

Almost all non-performing assets and bad loans have been reported and provisioned under financial till the quarter June 30, 2019. There seems to be no more NPA’s.

Yes bank has recently raised capital from qualified institutional investors at the rate of 83.55 per share totaling to approx. Rs. 1900 crores in August, 2019.

Yes bank has received approval from RBI to raise more capital on October 01, 2019.

After touching a lifetime low of approx. Rs. 30 per share, today (October 03, 2019) Yes bank share bounced back and closed on Rs. 42.50 per share i.e. increased by 33.50% in a single day.

On 14th October 2019 Yes bank sold its 6.56% holding in Fortis Healthcare at average price of Rs. 130 per share totaling to approx. Rs. 645 Crores in open market through a block deal. This will surely help yes bank to work on its growth plan.

On 31st October, 2019 Yes Bank informed Stock Exchanges that it has received a strong interest from Global Investors for investment worth $ 1.2 Billion i.e. Approx 8500/- Crores. Due to this news stock surged more than 25% and hit a day’s high of Rs. 78/- per share

Conclusion:

Wait till the stock price stabilizes. Avoid investing or trading in highly speculative market running on rumors and news.

Wait for green financial signals like Quarter September, 2019 results. If profitability and other indicators improve then it is a good sign.

Wait for another capital raise.

Only investor with long term view of 10 years or more can invest. Bank will take at least 3–4 years to regain it’s credibility in masses.

Disclaimer: My views are only for educational purposes only. Always take advise of professionals before investing in capital markets.

Source : Answer given by

Nirmal Sharma, Founder - taxepaper.in (2015-present)

at https://www.quora.com/Is-it-the-right-time-to-invest-in-Yes…