YES Bank has been a classic example of how not to run a private bank. The bank under its founder, Rana Kapoor went on an acquisition spree by splurging funds in the form of loans, credit cards, investment products, etc. (Link)
Finally, when the bank was unable to raise funds in 2020, the RBI intervened and different Public-Private Banks bought stakes in YES Bank to stabilize it. This was crucial as the Indian Banking system was coming out of the chronic NPA issue through resolutions in the NCLT and the country was in the midst of the first lockdown owing to Covid-19. In the interest of the public and the bank’s depositors, the RBI appointed former State Bank of India chief financial officer Prashant Kumar as YES Bank’s administrator
The stock of YES Bank tanked and turned into something that can be called a “penny stock”. From the lifetime high of ~INR 400(August 2018), the stock crashed below INR 20(March 2020)
Now, let us fast forward to July 2022 and take an assessment of what has happened to YES Bank
- Yes Bank is raising a total of US $1.1 Billion from two private equity funds – Carlyle and Advent International for a 10% stake each in order to fuel its future growth (Link)
- Yes Bank plans to segregate bad loans into a separate entity that will be a Joint Venture(JV) with JC Flowers Asset Reconstruction Company (ARC). This JV will clear all the bad loans through competitive bidding and allow YES Bank to recover funds (Link)
- In the recent quarterly results, YES Bank’s Profit jumped ~50% Year-on-Year(YoY) along with an improvement in asset quality and Net Interest Margin (NIM) (Link)
With a better balance sheet, improved ratios, and a digital focus to acquire new customers – YES Bank is said to have been in talks with more Investors to be onboard in this renewed journey. This has been reflected in the share price with an appreciation of about ~18% in the past month.
Having said this, there is still a lot of path to be traversed in the form of standing up to competition from new banks like Bandhan and traditional one’s like HDFC–Axis–ICICI to increase their base and profit margin. With a rise in interest rates (hence bond yields), it will eat into the income of the bank.
Despite all this, the bank is poised for one of the best turnaround stories and we can expect the share price to touch the three-figure mark possibly in the next 12–18 months rather than 3–6 months.
If you are an investor and planning to invest in YES Bank – kindly assess your risk appetite and invest accordingly
Hope this helps