Yes Bank loses Rs 25,000 crore market cap on Rana Kapoor's impending exit; should you invest now?

Yes Bank is facing a doomsday scenario today after the Reserve Bank of India (RBI) denied the bank’s chief Rana Kapoor, a 3-year extension of tenure as MD and CEO. In fact, RBI does not want Kapoor to stay for any lengthy period at Yes Bank, which is why it has even given a deadline to the bank to find a new successor, which is January 2019. This has not been taken well by investors and they have chosen to vote with their feet as far as Yes Bank share price is concerned. Yes Bank share price crashed, as a result, so much so, it clocked a new low of Rs 210.10 per piece on BSE. 

With this, Yes Bank has now tumbled by a whopping 34.03% so far in today’s trading session on the index. However, at around 11:31 hours, the bank is trading at Rs 255.55 per piece down by Rs 62.95 or 19.76%. 

Shockingly, with 34.03% decline, Yes Bank lost a massive over Rs 25,000 crore of market cap. In previous tradings, the bank’s market valuation stood at Rs 73,513.83 crore and so far it has declined below Rs 48,500 crore. 

Firstly, Yes Bank’s investors have every right to panic on stock exchanges. Kapoor has played a vital role in the bank and to find a successor will be a big challenge. The deadline set by the RBI is extremely short.

What happened is that Yes Bank sought RBI’s approval to re-appoint Rana Kapoor as MD & CEO for another 3-year period. However, the central bank decided to cut short the tenure to under 5 months. the exit deadline is even shorter than what was granted to Shikha Sharma of Axis Bank - she was given 7 months.

The Board will meet on September 25 to decide on the future course of action – which is succession planning.

Should you invest in the stock? 

The stock was a top BUY for many brokerages so far, but many have rushed to change that.

Mahrukh Adajania and Sanket Chheda, analysts at IDFC Securities said, “We believe this is a big negative for YES. Mr Kapoor was central to the bank’s business strategy. His absence will slow down loan and fee growth for the bank which could lead to a sharp fall in valuations. It could also impact YES Bank’s ability to raise high net worth deposits.”

Importantly, YES needs fresh capital given its strong loan growth, which will be difficult to raise after this event.

The duo further explained, "While YES has been reporting higher-than-sector loan growth and lower-than-sector NPLs for several quarters, we never turned Overweight on the stock because we were worried about succession planning at the bank. Over the last one year we have repeatedly highlighted the big risk of RBI not approving Rana’s re-appointment. That big risk has now materialized."

Following the event, IDFC Securities decided to cut target price up to Rs 230 from Rs 350. Analysts said, “An increase in credit cost to 80bps and a 10bps decline in NII/assets and fees/assets can take the sustainable RoE down to below 14% from 18%. We are downgrading the stock to Under performer from Neutral."