EUR 120.00 For Business Accounts Only

MOSL: YES BANK (Buy)-Yes!! NIL divergence-Key overhang addressed, worst appears to be behind

Yes Bank: Yes!! NIL divergence; Key overhang addressed, worst appears to be behind

(YES IN, Mkt Cap USD5.5b, CMP INR169, TP INR270, 60% Upside, Buy)

 

Yes Bank (YES) appears to have made a compelling statement to the market, to the investors and in particular to all its skeptics about its compliance practices in reporting bad loans. The Reserve Bank of India (RBI) has found ‘nil’ divergence in the asset classification and provisioning by YES for FY18. Importantly, this development comes after months of speculation on the magnitude of divergence that the bank was expected to report (the range was as high as the balance sheet size of some of the smaller banks), particularly after its MD & CEO was forced to step down by the RBI. Clarity in this regard will thus help the bank to clear air on one of the key overhangs and start a fresh journey under the new MD & CEO, who has to join office before 1st Mar’19.

• Key overhangs addressed, worst appears to be behind: With two of the key overhangs addressed (management and divergence), we expect YES to now look at other key issues facing the bank, viz., attrition at top management and capital raise. Clarity on these will drive a further recovery in the stock price, in our view. 

• NIL divergence to reinforce investor faith, enable smooth capital raise: We believe that the RBI’s report on divergence has removed challenges that the new management might have otherwise had to tackle to align the bank’s asset quality standards to the RBI’s requirements. More importantly, it will (a) reinforce investors’ confidence in the bank which was shaken over the past six months and (b) enable the bank to shore up its capital base as the new CEO takes charge and normalcy returns to operations.