A man stands in front of an advertisement for Yes Bank Ltd. in Mumbai (Photographer: Dhiraj Singh/Bloomberg)

Yes Bank Drops After Regulator Detects Bad Loan Underreporting

Shares of the Mumbai-based Yes Bank Ltd. fell 9.9 percent a day after the private lender said it had underreported bad loans for previous fiscal year that ended March 31.

The Rana Kapoor-led bank reported a Rs 6,360 crore divergence from the central bank’s assessment of non-performing assets. Brokerage Macquarie downgraded the stock citing “a growing trust deficit”.

Yes Bank Drops After Regulator Detects Bad Loan Underreporting

Here’s what brokerages had to say about Yes Bank after its second quarter earnings:


  • Stock Rating: Downgrade to ‘Neutral’ from ‘Outperform’.
  • Target Price: Unchanged at Rs 362.
  • Downgraded the stock as a growing trust deficit will likely be a big overhang on further re-rating for the stock.
  • Successive large divergence in non-performing loans undermines the transparency of disclosure.
  • RBI penalty for non-compliance with income recognition and asset classification norms adds fuel to fire.
  • Difficult for the stock to re-rate further from here.
  • Management says it has no exposure to Jindal Steel and Power Ltd. and has sufficient real estate collateral against accounts sold to assets reconstruction companies.

Credit Suisse

  • Stock Rating: Maintain ‘Neutral’.
  • Target Price: Cut to Rs 321 from Rs 330.
  • Yes Bank’s profit during the previous quarter was in line with estimates. However, results were over shadowed by divergence.
  • Earnings per share and target price cut to factor in higher credit costs.
  • Loan book remains strong, continued to be dominated by the corporate segment.
  • Asset quality worsened sharply.
  • Given large divergence in NPAs, trading multiples are likely to remain capped.


  • Stock Rating: Maintain ‘Hold’.
  • Target Price: Cut to Rs 300 from Rs 344.
  • The bank needs to change its narrative, whereas the investors need to alter how they view the business model.
  • The stock may be down on market open, and should be a good entry point.
  • Divergence in NPAs is growing not just in absolute amount but even as percentage of loans.
  • Cut estimates by 6-8 percent over the next two financial years.
  • Expect earnings per share to grow at a compound annual growth rate of 22 percent from previous financial year till financial year ending March 2020
  • Sustained growth and profitability remain upside risks.
  • Higher NPAs, compression in net interest margins, slow retail franchise build out and manage costs are the downside risks.

Morgan Stanley

  • Stock Rating: Maintain ‘Buy’.
  • Target Price: Unchanged at Rs 382.
  • Asset quality plays a spoilsport; loan and revenue growth remains robust.
  • Believe that opex growth for Yes Bank will continue to trail revenue growth, as the bank goes slow on branch expansion and focuses on improving productivity
  • Believe that while the repeated occurrence of such a big divergence is a clear setback, strong resolution capability gives us comfort.
  • Estimate Yes Bank to deliver industry leading growth, with compound annual growth rate of 25 percent in earnings over previous financial year till financial year ending March 2020.


  • Stock Rating: Maintain ‘Sell’.
  • Target Price: Unchanged at Rs 160.
  • NPA risks are not fully reflected and continue to expect credit cost of 165 basis points and 145 basis points during the current financial year and next financial year, respectively.
  • Indian Accounting Standards would pose additional challenges due to change in fee income recognition rules.
  • Expect sharp increase in gross non-performing loans which remains key factor for ‘Sell’ view.

Deutsche Bank

  • Stock Rating: Maintain ‘Buy’.
  • Target Price: Unchanged at Rs 385.
  • Divergence is discomforting; net impact may be limited.
  • We raise our slippage and credit cost estimates to 90 basis points from 75 basis points for the next two financial years.
  • Non-performing loans rise sharply’ credit cost shoots; management maintains guidance for the current financial year.
  • The bank is faring well on core trends.
  • higher-than-expected slippages and the bank’s inability to ramp up the share of low-cost deposits (CASA), leading to higher funding costs are the risks.

IDFC Securities

  • Stock Rating: Downgraded from ‘Neutral’ to ‘Underperform’.
  • Target Price: Cut to Rs 270 from Rs 309.
  • Yes Bank’s divergence on credit cost with other corporate banks has been our key cause of concern on the stock through the cycle.
  • We have been of the view that Yes Bank, being a corporate bank will see asset quality pressures like the others but possibly with a time lag.
  • With huge divergence for the last two financial years, our concern has aggravated
  • Yes Bank can continue to deliver strong earnings, but we believe the multiple will contract due to concerns not only on the huge divergence but also on the treatment of divergence.

Axis Capital

  • Stock Rating: Maintain ‘Buy’.
  • Target Price: Unchanged at Rs 365.
  • Asset quality divergence remains a key challenge for Yes Bank.
  • Loan growth was driven by robust growth in both corporate and retail businesses
  • We retain our stock rating as core operating performance remains strong and as it continues to gain market share along with better retail penetration and adequate capitalisation.