Laborers clean windows near signage for Yes Bank Ltd. at the Indiabulls Real Estate Ltd. Finance Centre in Mumbai, India (Photographer: Dhiraj Singh/Bloomberg)

Yes Bank Jumps 30% As FY18 Asset Quality Meets RBI Norms

Shares of Yes Bank Ltd. jumped as much as 30 percent, the most intraday since July 2005, after the private lender said that the Reserve Bank of India found no divergence in its bad loans and provisioning from the central bank’s norms for the year ended March 2018.

The central bank’s risk assessment report came after Yes Bank posted higher bad loan ratios for two straight financial years. The lender’s leadership was also under question after the RBI pointed out discrepancies in how it reported its bad loans.

The banks have to disclose divergences if the additional provisioning requirements assessed by the RBI exceed 15 percent of the net profits after tax and/or additional gross NPAs identified by the RBI exceed 15 percent of the incremental gross NPAs for the reference period, or both, as per the website of the central bank.

Here’s what brokerages said

Macquarie

  • Maintains 'Outperform' with a target of Rs 270.
  • Move reinforces our conviction that asset quality is fine.
  • Report should give the market significant comfort on the bank’s balance sheet.
  • Focus now moves to the new chief executive officer’s strategy to articulate the way forward.
  • Stock trades at what we believe to be a very compelling valuation

Motilal Oswal

  • Maintains ‘Buy’ with a target of Rs 270.
  • Key overhang addressed, worst appears to be behind.
  • Report removed challenges that the new management might have to tackle.
  • Nil divergence to reinforce investor faith, enable smooth capital raise.
  • Yes Bank will now focus on attrition at top management and capital raise.
  • Report is a vindication of Rana Kapoor’s performance at the bank.

SBI Capital Markets

  • Maintains ‘Buy’ with a target of Rs 315.
  • Nil divergence on asset quality is massive for investor confidence.
  • RBI wanted change in top management due to asset quality divergence.
  • One step closer to regaining regulatory credibility for the bank.
  • Move should drive a sharp gap-up in the stock in trade.
  • Expect gradual normalisation of operating performance as uncertainties addressed.
  • Expect the narrative to quickly move towards a bull-case scenario.

Jefferies

  • Maintain ‘Buy’ with target of Rs 275.
  • Says question of why the RBI ordered Kapoor to go remains unanswered.
  • Believes it is time for the RBI to increase transparency on decisions.
  • Bank will be able to approach the capital markets to replenish its Common Equity Tier-1 ratio.

Also read: Yes Bank’s Co-Founders Bury The Hatchet After A Decade-Long Feud