Yes Bank Ltd’s shares have had a lousy run this year, losing a whopping 67% since April and underperforming benchmark indices by a massive margin.

Indeed, at the current price the stock trades at below its estimated book value for FY20. Even so, analysts are in no hurry to rerate the stock.

A new and strong management, and the move to come clean on the toxic level of its loan book hasn’t enthused investors to buy.

Scepticism is rampant in the market and the lender’s formal release on Monday stating that these are unfounded concerns shows it knows the market’s sentiment is against it.

Analysts at brokerage firm Jefferies India Pvt. Ltd, for instance, have pointed out the bank’s vulnerabilities and questioned its level of capital.

“Discussion with market participants leaves us with an impression that the bank may not have come clean on the pool of stressed loans or its impact on the book value. This has created a trust deficit," said Jefferies India in a note. “Still, it may not have been as big an issue, had the bank recapitalised itself on time."

Yes Bank’s Common Equity Tier-1 ratio stood at 8.4% as of March, a sharp drop from double-digit levels just two years ago. The provisioning that went to clean up the balance sheet has eaten into capital for sure and the lender is in dire need of funds.

CEO Ravneet Gill has been making all the right sounds about raising money. In fact, as pointed out in a Mint article on 21 May, the bank was in talks with marquee investors for money. Jefferies India estimates the bank needs $3-4 billion ( 20,000-25,000 crore) over three years.

(Graphic: Vipul Sharma/Mint)
(Graphic: Vipul Sharma/Mint)

But nothing has materialized so far. “Yes Bank’s delay in capital raising, concerns over its corporate portfolio and impact of revised growth strategy result in limited earnings visibility in the near to medium term," analysts at Reliance Securities Ltd said in a note.

The fact that the proportion of BB and below-rated dodgy loans has surged to 7.4% of its book as of March shows that stress levels have hardly abated.

Further, just like its peers Yes Bank needs quick resolution in some of the big insolvency cases.

Another soft spot has been the elevated exposure to real estate and capital markets, two sectors the regulator thinks are riskier than others.

It is clear that Yes Bank has to fix its house at multiple levels and Gill will find it a tough walk. As for investors, trusting the lender’s financial metrics would be a slow process.

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