YES Bank’s NPA struggle is bad news for retail investors

• Follow

The disclosure by YES Bank’s management related to a stressed asset pool of Rs 18,550 crore, almost twice as much as it reported in the second quarter, has pushed the stock to the ground. The retail investors who tried to do bottom-fishing with the stock may be in for a rude shock.

For the private lender, the Covid-19 related stress on sectors such as hospitality and real estate has taken a fresh toll. The total stress book which is more than 30-days overdue stands at Rs 28,000 crore. It has made a provision of Rs 2,600 crore for the standstill NPAs and the restructuring.

A Mumbai-based stock analyst Nirbhay Kamath said the stock is in downtrend making lower highs and lower lows.

“There is resistance at Rs 15.45 and support at Rs15. If it breaks, support can see targets of Rs 13.85/12.40. Overall the stock continues to be bearish in the near term,” he said.

The bank had proposed to set up an asset reconstruction company (ARC) by hiving off non-performing assets (NPAs), and is awaiting regulatory approval.

“We would like to transfer the entire stocks of the NPAs to this entity as a fair market value,” Prashant Kumar, Managing Director and CEO, said in a recent analyst concall. Some foreign firms are keen to invest in the proposed ARC.

The worsening fears over the lender’s asset quality and lack of clarity on the proposed ARC, which was meant to manage the pile-up of bad loans, have forced brokerages to downgrade the stock. Anand Rathi lowered its rating to a `sell’ with a target price of Rs 14. Emkay Research recommended a ‘sell’ rating to the stock and set a target price of Rs 11. Elara Capital has given a ‘sell’ rating with a target price of Rs 6.

Individuals with share capital up to Rs 2 lakh account for 21.2% while individuals having share capital exceeding Rs 2 lakh stand at 5.4%. Banks, financial institutions and foreign portfolio investors hold the remaining stake.

“We believe that the transfer of NPAs to a separate ARC (somewhat similar to IDBI in 2003) probably means window-dressing standalone bank balance-sheet, but we need to see the extent of hair-cuts, structure of ARC and the recovery record in the ARC,” Emkay Research said in its report.

Anand Rathi believes that its near-term earnings will be negative with higher slippages expected.

The stock which touched a 52-week high of Rs 87.95 on March 18, 2020, is currently on a downslide, and is quoting around Rs15.65 per share. It has recorded a 52-week low of Rs 5.55 per share.

On January 22, 2021, Kumar said in the concall that the confidence is coming back.

“There is a gradual improvement in both the demand for credit and the collection efficiency. We are very near to the pre-Covid levels in both the cases,” he had said.

He said the net NPA number has come down to 4% because of the provisioning, as against 4.7% in the previous quarter. After making the provisions, it’s the third consecutive quarter when the bank has registered a net profit. It reported a net profit of Rs151 crore in the third quarter as compared to a loss of more than Rs18,000 crore in the corresponding quarter of the last fiscal. Net interest income has also grown by almost 30% quarter-on-quarter to around 3.4%.

“On the deposit side, we have been able to increase our deposits by almost 8% quarter-on-quarter and 39% over a period of nine months. For the first time in the last four quarters, there is improvement on the CASA ratio which is at 26%. And in fact, when we have started our drive for customer acquisition,” said Kumar.

Last month, the bank managed to open 85,000 accounts as against an average 50,000 per month. In the December quarter, it opened 2.2 lakh CASA accounts as compared to 1.5 lakh accounts in the previous quarter.

The bank is putting more focus on retail and MSME in its business strategy. “There is more traction on the retail and MSME and we have kept a target of Rs 10,000 crore of disbursement on the retail and MSME for the quarter three and against the Rs10,000 crore we have disbursed almost Rs 12,000 crore in retail and MSME and on corporate side, our disbursement was around Rs2,000 crore,” said Kumar.

The stock closed 0.32% higher at Rs 15.65 on February 23 as Sensex settled around 7 points up at 49,751.