Not an opportunity, say wary analysts

THE COMPASS

The Reserve Bank of India’s (RBI’S) draft reconstruction scheme for YES Bank, announced on Friday, may have provided relief to deposit holders. Imposition of withdrawal limits, announced on Thursday, had led to panic.

However, it is unlikely to change anything for equity investors, despite the sharp fall in share price. On Friday, the YES Bank stock plunged 56 per cent to ~16.2, after hitting its lowest level of ~5.55.

Despite the slump, experts have advised investors to sell on rallies. According to Kajal Gandhi, analyst at ICICI Direct:

“Though there is still no clarity on the fresh fund infusion required in

YES Bank, getting new business is going to be very tough for the lender even after (the proposed) fund raising.

We don’t see any balance sheet growth for YES Bank.”

Even the stock of State Bank of India (SBI) (which is acquiring 49 per cent stake in YES Bank), could see de-rating in the near term considering the latter’s exposure to stressed sectors and its bailout, say analysts at ICICI Direct.

The brokerage sees minority shareholders on the losing side, and is advising them to exit. Another analyst from a domestic broking house echoes similar views.

“Even after reconstruction, the revival of YES Bank looks very difficult. We don’t see the bank performing, at least in the medium term,” he says. Even after the final reconstruction scheme is in place, it would take a year or two to streamline the bank and clean its balance sheet.

YES Bank’s latest available reports show it has ~31,400 crore of loans with BB & below rating, which typically indicates high default risk.

This potentially risky loan pool is 1.7x its net worth, adjusted for net non-performing assets, as of September 2019. However, the major issue for the bank would be to get adequate liability (deposits) to fund its business.

After the recent saga, analysts believe the bank may not see a good deposit base as it has lost trust. Further, the reconstruction scheme has been introduced largely to secure existing depositors’ interests. There will be high equity dilution in YES Bank’s existing share capital. According to the scheme, the bank’s authorised capital shall stand increased to ~5,000 crore comprising 24 billion equity shares of ~2 each, as compared to 2.55 billion shares outstanding, as of December 2019.

Mona Khetan, analyst at Reliance Securities, believes the ultimate equity dilution for existing shareholders could be 90 per cent, even as additional tier-1 bonds have been permanently written down. “With a sharp correction in prices across BFSI stocks of late, investors have the opportunity to invest in better quality names with sound fundamentals, rather than staying with YES Bank,” she added.