Yes Bank stock now gets its Gill to breathe in troubled waters
2 min read.Updated: 25 Jan 2019, 08:31 AM ISTAparna Iyer
The third quarter metrics show that in the absence of Rana Kapoor, Yes Bank's balance sheet growth would be just fine
A decisive leadership announcement seems to have lifted the veil of uncertainty over the stock and investors just couldn’t say no to it any more
A clean image works more wonders than a clean balance sheet and Exhibit A is Yes Bank Ltd. The private sector lender’s stock jumped 16% in the last half hour of trading on Thursday, after it announced that Deutsche Bank’s chief of India operations Ravneet Gill would be the new boss at Yes Bank.
A decisive leadership announcement seems to have lifted the veil of uncertainty over the stock and investors just couldn’t say no to it any more. So much so that investors didn’t care about the accompanying announcement that net profit fell 7% year-on-year in the December quarter, as the lender set aside 30% more provisions than it did a year back.
Neither did the sharp jump of gross bad loan ratio to 2.1% perturb investors. The adjoining chart shows that the lender has hardly managed to come out of its bad loan shadow left by its former chief Rana Kapoor, who is also the bank’s promoter. In fact, in the three months to December, when Kapoor was away from the bank’s operations, the lender has reported a jump in its toxic assets.
To be fair, Yes Bank’s delinquencies are linked to the beleaguered Infrastructure Leasing and Financial Services Ltd (IL&FS), and it is not alone in this soup. It has an exposure of ₹2,530 crore to the group, which is just 1% of its loan book. The private sector lender has provided ₹571 crore towards this exposure that covers about 23% of the loan.
Of course, these are numbers of the past and Gill may very well change things at the bank. Markets being markets are factoring in a better-looking tomorrow already.
While Kapoor has been blamed for the rise in the toxic loan pile, under him the bank’s balance-sheet growth galloped. What the market would now look for is whether Gill, known for a more measured approach, will sign off loans with the same frenzy that Kapoor did.
The third quarter growth metrics show that in the absence of Kapoor, balance-sheet growth would be just fine. The bank’s core income growth of 41% was the fastest in six quarters, its deposit base expanded at 30% and loans grew 42% year-on-year.
What is Gill up against when he takes over in March and will present the full-year performance of the bank to investors?
One, Gill would have to provide for mark-to-market losses the bank has postponed to the next quarter under a leeway provided by the regulator. The new chief would also know whether the bank has diverged in reporting bad loans for the third time in FY18 as the regulator’s report would be ready by then.
Will he do the proverbial kitchen sinking wherein a new leader always cleanses the books of the previous one’s mistakes? Investors can breathe easy as Gill may not have anything major to do. Yes Bank’s kitchen has already been sunk by the regulator through its deep cleansing asset quality review.
The stock may have got its much-needed boost, but performance in the next few quarters will show whether Gill will give wings to investors’ dreams.