Brokerages See Heightened Volatility For Yes Bank Stock After CEO Extension Deferred

Shares of Yes Bank Ltd. are likely to witness increased volatility due to the Reserve Bank of India deferring a three-year extension to CEO Rana Kapoor, according to brokerages.

The stock fell over 5 percent in early trade today after Yes Bank informed in an exchange filing late last night that Kapoor has received the RBI’s approval to continue as managing director and chief executive of the Mumbai-based lender until “further notice” from the regulator, deferring a request for a three-year extension to his term, starting Sept. 1. The lender’s shareholders had in June approved the extension for the CEO, whose current term was set to end today.

There are also fear among investors that this might impact the overall performance of the management team and could hamper the bank’s fund raising plans, which in turn would impact the future growth prospects, said brokerages.

Kapoor has created a franchise for Yes Bank, Jefferries said in a note. Given the lender’s thin capital position, raising fresh capital via equity without a clear visibility on the continuity of top management would be a fairly troubled space, it said.

Here’s what else brokerages had to say on Yes Bank post the RBI move:

Jefferies

• Reappointment of Kapoor may not be a clean one.
• Despite all the options possible, street to take the RBI verdict negatively.
• Event could be one of the downside catalysts which seems to have been triggered.

Morgan Stanley

• We had a base case expectation that Kapoor’s extention would be done without subjectivity.
• RBI approval is valid until further notice lead to investor uncertainty and could potentially lead to increase in short-term volatility.

Citi

• Opening a 30-day negative catalyst watch on Yes Bank due to uncertainty around the continuation of Kapoor as MD and CEO.
• The delay from RBI raises the risk that he might not get an extension or might get a curtailed term, both of which could lead to stock volatility.
• We believe that Kapoor plays a key role as the head of the bank.

Macquarie

• Clearly anything short of a full three-year term for Kapoor is going to be taken negatively by investors and would remain a key overhang on the stock.
• It is best to wait and watch for now.
• The bank’s plans of a $1-billion qualified institutional placement at the end of the year and future growth would also go into limbo.