Yes Bank banks on debt raising to shore up balance sheet, stock firms up

Yes Bank on Thursday received a board approval to raise funds worth 10,000 crore by issuing debt securities. While this will help to shore up its loan book and strengthen its balance sheet, the stock slipped marginally in trade as investors see stress rising in its business segment.

Yes Bank reported a Q4 loss of 3,787.75 crore against a profit 2,628.61 crore last year, mainly due to higher interest reversals on NPAs leading to a sharp margin contraction (down 200bps yoy/30bps qoq to 1.6%) and accelerated provisioning, including higher write-offs. Gross non-performing assets (NPAs) stood at 15.41% in March quarter as compared to 15.36% in the previous quarter.

NIM plunged to 1.6% against 3.4% in December 2020 quarter, due to interest reversals of Rs750 crore on NPAs and 140 crore on interest-on-interest waiver on loans as per supreme court directive. The bank’s loan book shrank 3% in 2020-21 to 1.67 trillion from 1.71 trillion in 2019-20.

Based on the above facts, analysts at Emkay in a note have retained Sell rating on the stock amid continued concerns over its asset quality, sub-par return ratios and unfavorable risk-reward ratio with higher valuations, as the current top management with the help of regulatory/investor support has been able to arrest bank failure, but re-orienting into a sustainable retail bank will require a differentiated private management. Faster and sustainable business growth and lower-than-expected NPA formation, including via sale of assets remains as the key risks, the brokerage said. Credit growth remains bleak at Rs1.7 trillion down 35% yoy/2% qoq due to weak demand in the underlying corporate book.

Yes Bank stock has been an underperformer compared to its peers in the banking industry. From the beginning of the year, Nifty Bank index gained 12% compared to Yes Bank’s fall of 19% returns. But lately the stock is trading flat and is likely to remain an underperformer, analysts feel.

Vishal Wagh, Research Head Bonanza Portfolio said “Additional liquidity will help it to strengthen the business but price appreciation can be seen only when it will sustain above 20 on a monthly closing basis. Any rise before then may be sold out”

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