YES Bank shares may tumble today over Rana Kapoor's impending exit
The RBI rejected the lender’s request to extend the tenure of its promoter and CEO Rana Kapoor by three years. RBI has asked the bank’s Board to find a replacement. The 61-year-old Kapoor owns over 10% in the mid-sized bank.
YES Bank’s shares are likely to tumble today as Citigroup and IDFC Securities slashed their ratings on the bank a day after Reserve Bank of India (RBI) asked its chief executive Rana Kapoor to step down after January 31. On Wednesday, the central bank rejected the lender’s request to extend the tenure of its promoter and CEO Rana Kapoor by three years. RBI has asked the bank’s Board to find a replacement. The 61-year-old Kapoor owns over 10% in the mid-sized bank.
Citi and IDFC Securities believe that Kapoor’s imminent exit might make raising fresh capital as well as growing deposits and fee income harder for the Mumbai-based lender.
On Wednesday, YES Bank stock closed at Rs 318.50, down 1.44% from the previous close. Intra-day, it touched a 52-week high of Rs 404 and a low of Rs 285.
Citi has downgraded the stock to ‘sell’ from ‘buy’ earlier and cut the target price by 39% to Rs 270. It said the premium attached to the bank’s shares for CEO Kapoor “can go away”. While senior management is competent, Kapoor played a significant role in building the company. “Lender might have to defer capital raise, which could slow down growth,” it said.
IDFC Securities downgraded the stock to ‘underperformer’ from ‘neutral’ and cut target price to Rs 230 from Rs 350. “Kapoor’s departure will lead to a slowdown in loan and fee growth, which can lead to a sharp fall in valuations. Fresh capital and high net-worth deposits will become difficult to raise,” it said.
Meanwhile, Moody’s Investors Service on Thursday affirmed the ratings of YES Bank, a day after the RBI move. The firm has also maintained the outlook on the ratings as stable.
The overall issuer rating continues to stand at Baa3, said Moody’s, adding that all the other ratings on the bank have been affirmed.
“YES Bank’s profitability is strong, and Moody’s expects that the bank can maintain low credit costs over the next 12-18 months,” the global rating firm said in a note. It added that the growth in both the interest and non-interest income will help the city-headquartered bank maintain “solid profitability”.
However, it warned that while the bank’s current asset quality metrics are strong and superior to that of peers, its “aggressive growth strategy poses asset risks”.
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If the bank is able to maintain the present asset quality ratios and reduce credit risk concentrations, its share of low-cost Casa (current account savings account) deposits improves without affecting the margins and profitability is sustained, Moody’s said the bank’s rating can move up. However, an increase in non-performing assets or decline in earnings can lead to a downgrade in ratings, it added.
(With inputs from agencies)