The existing stress on the bank’s book and surprises in terms of new stress (thereby weighing on its capital position), however, are key reasons why investors are shying away from the stock.
According to Lalitabh Srivastava, assistant vice-president at domestic brokerage Sharekhan, the recent fund-raising through QIP has given breathing space for YES Bank. However, the existing pool of stressed accounts and incremental pressure on the bank’s asset quality are bigger worries. Srivastava has a “hold” rating on YES Bank.
Even after the QIP, the bank’s core equity tier-1 capital is at just 8.6 per cent, slightly above the minimum regulatory requirement of 8 per cent by FY20 and marginally above the prompt corrective action threshold of around 7.75 per cent, as per analysts.
This, given the stressed pool (“BB” and below-rated debt) of 9.4 per cent of total loan book as of June 2019 suggests that the pressure on the bank’s capital may not ease soon. And, this also shows a dearth of growth capital for YES Bank.
In the June 2019 quarter (Q1), the bank reported elevated fresh slippages (loans turning bad) of Rs 6,230 crore leading to a 179 basis point quarter-on-quarter expansion in gross non-performing asset (NPA) ratio to 5 per cent. This ratio was way lower at 1.31 per cent in June 2018 quarter.
All this suggests that the near-term earnings outlook is gloomy, say analysts who believe that unless issues regarding the stressed loan book and capital are not addressed adequately, the stock is unlikely to witness any improvement in valuation. The YES Bank stock currently trades at a mere 0.6 times its FY21 estimated book value, way below about 2 times that of ICICI Bank and Axis Bank.