YES Bank nears 5-year low; slips 20% in four days after UBS' downgrade

Shares of YES Bank hit nearly five-year low of Rs 107, down 8 per cent on the BSE on Tuesday, falling 20 per cent in the past four days after global brokerage firm UBS cut the target price to Rs 90 from Rs 170. The stock of the private sector lender was trading at its lowest level since August 12, 2014.

The foreign brokerage firm has maintained ‘sell’ rating on the stock saying sharp turnaround is less likely to fructify. It expects 255/200 basis points (bps) credit costs in FY20/21, higher than management guidance of 125 bps. NPL (non-performing loan) risks seem higher than current expectation, it said.

Analysts at UBS expect more asset-quality pressure than consensus, given the bank’s higher exposure to stressed corporates and lower recognition of these loans as gross NPLs.

A sustained economic slowdown could impact the banking and finance sector on several fronts, including a slowdown in loans and higher NPL risk, while affecting fee income and exerting pressure on net interest margin (NIM), the brokerage firm said.

Global rating agency Moody’s last week placed YES Bank's foreign currency issuer rating of Ba1 under review for downgrade as liquidity pressures on finance companies may negatively impact credit profile of the lender.

The review for downgrade takes into account Moody's expectation that the ongoing liquidity pressures on Indian finance companies will negatively impact the credit profile of YES Bank, given the bank's sizeable exposure to weaker companies in the sector.

The negative adjustment takes into account management's aggressive strategy, which has translated into rapid loan growth in the past 4-5 years and large concentrations to some of the Indian conglomerate groups. The adjustment also takes into account the Reserve Bank of India's (RBI) identification of several lapses and regulatory breaches in the various areas of the bank's functioning, the global rating agency said.

In the past two months, the stock of YES Bank tanked 58 per cent after it posted its first ever net loss of Rs 1,506 crore for the March quarter, on the back of the provisions soaring over nine times. It had posted a profit of Rs 1,179 crore in the year-ago period. In comparison, the S&P BSE Sensex was remained unchanged during the same period.