YES Bank gets a ratings cut after RBI order on Kapoor

Brokerages including Citigroup and IDFC Securities have slashed their ratings on YES Bank, citing weak business outlook. This follows the Reserve Bank of India’s direction to CEO Rana Kapoor to step down after January 31, rejecting the lender’s request to extend his tenure by three years.

Kapoor’s departure might make raising fresh capital, as well as growing deposits and fee income, harder for the Mumbai-based lender, the brokerages said.

Citigroup, in a note, said the premium attached to YES Bank’s shares for Kapoor “can go away”. The bank’s senior management is competent, but Kapoor played a significant role in building the bank, it added. The note added that YES Bank might have to defer its capital raising plans, which could slow down growth. The brokerage downgraded the stock to ‘sell’ from ‘buy’. It cut its price target by 39 per cent to ~270.

Domestic brokerage IDFC said in a note that Kapoor’s departure will lead to a slowdown in loan and fee growth, which could “lead to a sharp fall in valuations”.

Shares of YES Bank are already down 20 per cent from their peak of ~400 achieved last month.

IDFC note also said the bank might find it difficult to mobilise fresh capital and high net worth deposits.

It downgraded the stock to ‘underperform’ from ‘neutral’, and cut price target to ~230 from ~350. Macquarie and Edelweiss also termed the development as negative.

Currently, the YES Bank stock has a total of 42 ‘buy’ ratings, four ‘sell’ ratings and six ‘hold’ ratings, shows Bloomberg data. The consensus 12-month price target for the stock is ~423.

Market players said more brokerages could react to the RBI development after trading resumes on Friday.