Yes Bank shares tank 29% as RBI cuts Rana Kapoor’s tenure

Mumbai: Shares of Yes Bank Ltd today fell nearly 29%, its steepest fall ever, as several brokerages downgraded the stock and cut its target price after the Reserve Bank of India (RBI) cut CEO Rana Kapoor three-year tenure to only four months.

Kapoor has to step down from the post by 31 January 2019.

Yes Bank shares closed at ₹ 227.05 on the BSE today, down 28.71% from its previous close, eroding nearly ₹ 21,100 crore of its market capitalisation. The benchmark Sensex fell 0.75%, or 279.62 points, to end the day at 36,841.60 points.

In intraday trade, Yes Bank shares fell as much as 34%, its steepest fall since listing, to ₹ 210.10 apiece—a level last seen on 24 June 2016. So far this year, the stock has declined 28%.

On Wednesday, brokerage firms Goldman Sachs Group, Nomura Research, Citigroup Inc. and IDFC Securities Ltd have downgraded the Yes Bank stock and slashed their target prices.

Goldman Sachs lowered its rating to “neutral” from “buy” and reduced its target price to ₹ 300 from ₹ 383 a share.

Nomura Research downgraded the stock to “neutral” from “buy” and reduced its target price to ₹ 345 from ₹ 500 earlier.

Citigroup cut to “sell” from “buy” and slashed its target price to ₹ 270, down 39% from its earlier target.

IDFC Securities has decreased its target price to ₹ 230 a share from ₹ 350 a share.

“Kapoor was central to the bank’s business strategy. His absence will slow down loan and fee growth for the bank which could lead to a sharp fall in valuations. It could also impact Yes Bank’s ability to raise high net worth deposits. More importantly, Yes Bank needs fresh capital given its strong loan growth, which will be difficult to raise after this event”, said IDFC Securities in a 19 September note to its investors.

Yes Bank had late on Wednesday filed with the BSE that “RBI has intimated that Rana Kapoor may continue as the MD & CEO till 31 January 2019, and the Board of Directors of the Bank are scheduled to meet on 25 September 2018 to decide on the future course of action”.

Yes Bank is the second private lender after Axis Bank whose CEOs’ tenure has been cut short, despite receiving shareholders’ approvals for an extension. Earlier this year, RBI had asked Axis Bank to review CEO Shikha Sharma’s reappointment to the post till June 2021, following which she cut short her tenure to 31 December this year. Meanwhile, ICICI Bank Ltd boss Chanda Kocchar is under investigation for alleged irregularity in loan approvals to the Videocon Group.

Rana Kapoor’s leadership came into question after RBI’s asset quality review (AQR) indicated bad loan divergence at Yes Bank.

“Near-term uncertainties around RBI’s reluctance, new leadership and capital-raising will weigh on (Yes Bank’s) valuation. Hence, we are pruning the target multiple (to 2.5x from 3x FY20 earlier) and revising the target price. However, the strong foundation laid over the years and a well-experienced second-line management should help sustain the superior RoE profile”, said Edelweiss Securities Ltd in a note today.

Nomura has cut its earnings growth estimates for Yes Bank to 20% for the next two years and sees increase in credit costs by up to 100 basis points. It has reduced the target multiple to 2.1x for fiscal year 2020. Hundred basis points make up one percentage point.

“We do not subscribe to the view that without Rana Kapoor, there is no future for this systemically large bank, or that its financials have been cooked up,” said Jefferies India in a note today. “CET 1 is low but we do not see a material growth slowdown. More clarity is needed, and we do have questions, but we are not panicking”. The brokerage has maintained its “buy” rating on Yes Bank but cut its target price to ₹ 365 a share from ₹ 445.

Of the analysts covering the Yes Bank stock, 39 have a “buy” rating, nine have a “hold” rating, while four have a “sell” rating, shows Bloomberg data.