YES Bank sees biggest single-day gain

YES Bank ended 31 per cent higher on the National Stock Exchange (NSE) at ~221, recording its sharpest rally since listing on July 12, 2005, after the private lender said the Reserve Bank of India (RBI) found no divergence in asset classification and provisioning done by the lender during financial year 2017-18 (FY18).

The stock had rallied 32 per cent in intra-day trade to ~224. The trading volume jumped nearly fivefold, with a combined 284 million equity shares, representing 12 per cent of total equity, being traded on the NSE and BSE on Thursday.

“The RBI assesses compliance by banks with extant prudential norms on income recognition, asset classification and provisioning (IRACP) as part of its supervisory processes. As part of this process, YES Bank received the Risk Assessment Report for FY2018. The report observes nil divergence in the bank’s asset classification and provisioning from RBI norms,” the bank said in a regulatory filing on Wednesday, after market hours.

Earlier, the banking regulator had found divergence in non-performing assets (NPAs) assessed by YES Bank and those assessed by it (RBI) for FY17. The divergence in gross NPAs for FY17 was about ~6,355 crore. YES Bank had assessed gross NPAs at ~2,018.6 crore, while the RBI estimated them at ~8,373.8 crore. The gap in meeting regulatory norms was one of the factors cited by the RBI for not extending MD and CEO Rana Kapoor’s term.

Analysts maintain a positive view on the stock, especially after the development. Nilanjan Karfa and Harshit Toshniwal of Jefferies, for instance, maintain a ‘buy’ rating on the stock with a price target of ~275 – up nearly 25 per cent from current levels.

“We had thought 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 per cent after the news. However, with the RBI’s audit report now citing ‘nil’ NPL divergence, we seem to have mistaken a mere crow for a swan. As noted in our earlier report, we now await the bank’s new strategy, if any, as the risk audit report has made the balance sheet pristine,” they wrote in a recent report.

Analysts at SBICAP Securities, too, believe this ‘clean chit’ marks a significant milestone in the lender’s efforts at regaining regulatory credibility. With the key uncertainties now addressed, the brokerage firm expects gradual normalisation of operating performance and consequent valuation multiples.