YES Bank tanks another 18% in 3 days: Is it a sinking ship now?

Shares of YES Bank extended its fall into the third straight session on Tuesday despite the board having approved raising of up to Rs 10,000 crore in one or more tranches on January 10.

The private sector lender said it would not proceed with the offer made by Erwin Singh Braich/SPGP Holdings.

The scrip declined 18 per cent to an intraday low of Rs 38.75 in early trade on Tuesday against January 9 closing price of Rs 47.30.

The stock has tanked 80 per cent in last one year as non-performing assets have risen sharply and a delay in raising capital has spooked investor sentiment.

The bank was earlier talking about raising up to $2 billion when the $1.2 billion offers from Canadian investor Erwin Singh Braich and Hong Kong-based SPGP Holdings were first announced in November.

Investor sentiment was hit further on Friday when an independent member of the board and head of the bank's audit committee, Uttam Prakash Agarwal, resigned. The lender later said it was reviewing 'fit and proper' status of Agarwal, as directed by the Reserve Bank of India.

Kotak Institutional Equities said the recent resignation by an independent director and prolonged delay in capital raising led us to retain our negative view on the bank despite steep correction in the stock price.

From a long list of potential investors that YES Bank had mentioned, only investments from Citax Holdings are still being considered, the bank said.

“Few areas to address are stability of the balance sheet, especially from a recognition/provision perspective and potential risks of deposit outflow, transition to retail-funded retail lending model from a wholesale-funded wholesale lending model, and talent to manage the transition. We struggle to change our view and cut our fair value to Rs 40 (from Rs 55) to reflect this,” Kotak Institutional Equities said in a report on Tuesday.

YES Bank is traversing through the most challenging period in its history. Kotak believes a revival is not impossible, but recent history for the sector has thrown mixed results for private banks that have gone through similar conditions.

“The journey for YES Bank to regain trust from public markets is contingent on a credible capital-raising exercise as recent infusion has not been sufficient for the extent of bad loans pending to be recognised, ability to maintain/improve the liability profile, which we would measure through differential in cost of funds with peers, a shift in loan mix (does not have to be a necessity to replicate frontline banks, which have a strong edge on customers origination and costs) and stability of the senior management and rebuilding trust of employees,” the brokerage said.

In an interaction with ETCFO, Amarjit Chopra, former President of the Institute of Chartered Accountants of India (ICAI) and an independent director on the boards of multiple large companies said, “YES Bank may be an institution in problem as of now, but it does not qualify to be labelled as a sinking ship. It has its strengths and when the board gets its act together to raise the funds in a legitimate manner at right costs and resolves the issues raised by Agarwal, it may still bounce back. But it may not be easy, given the present banking scenario.”

The scrip closed 8.43 per cent down at Rs 38.55 on BSE.