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Why YES Bank stock fell over 34% in early trade today

Why YES Bank stock fell over 34% in early trade today

The YES Bank stock tumbled up to 34.03% or 108 points in early trade to 210.10 level. At 9:44 am, the stock was trading 17 percent or 54 points lower at 263.65 on the BSE.

BusinessToday.In
  • Updated Sep 25, 2018 2:28 PM IST
Why YES Bank stock fell over 34% in early trade today

In a kneejerk reaction, the YES Bank stock crashed in early trade today after the RBI cut the tenure of its founder and CEO Rana Kapoor till January 31, 2019. Kapoor was given three-year extension by the bank's shareholders in June, but the central bank had not specified the exact period of his tenure.

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The YES Bank stock tumbled up to 34.03% or 108 points in early trade to 210.10 level. At 9:44 am, the stock was trading 17 percent or 54 points lower at 263.65 on the BSE.

It opened at a loss of 10% in trade today. The large cap stock has been losing for the last two days and lost 23.56% during the period. YES Bank was the worst performer on the Sensex, losing a whopping 28.71 per cent or 91 points to 227.05 points.

The stock is down 22% since the beginning of this year and has lost 34.75% during the last one year.

Kapoor has been the bank's CEO since 2003 and holds 10.66% stake in the lender along with his family.

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After the shareholder's extension to Kapoor's tenure in June, the private sector lender waited for RBI's final stance taken by sector regulator on the reappointment of its CEO Rana Kapoor whose term ended on August 31, 2018.  

On August 30, the RBI approved reappointment of Rana Kapoor as managing director and CEO till further notice from the central bank. The stock closed over 5% or 18.50 points lower at 343.40 level on August 31, 2018 as the RBI did not approve a full three-year extension on the CEOs tenure.

Exact reasons for the pending approval from the RBI were still unknown, but the apex bank has become tough on lenders for rise in bad loans and divergences in the reported figures.

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Mustafa Nadeem, CEO at Epic Research said, "YES Bank shares have taken a hit due to certain issues that were being looked into by the RBI. The extension of the term for CEO Kapoor came in the late 1st quarter when it was being asked by shareholders voting. It was pending from RBI side while the latest development has marked a gloomy outlook as RBI has reduced the term for the same.

It has been under investors eye lately since given its loan growth, it was requiring fresh capital. Post this it would be very tough. This is not the first time RBI has used it previously we have seen the same in AXIS, ICICI as well. While to add further negative sentiments RBI is already looking into to NPA data reported by YES Bank.

All this adds a great number of jitters to investors for medium to long-term perspective.

Technically, there is a further downside risk that comes as this is an initial reaction. Below 220 the stock may see itself in the range of 140 levels."

YES Bank reported gross NPAs for FY17 at Rs 2,018 crore. However, gross NPAs of the private sector lender were estimated to be Rs 8,373.8 crore by the central bank. The resulting divergence was nearly three times the reported amount.

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Another private sector lender came under the RBI scanner for misreporting bad loans.

Earlier this year, Axis Bank CEO Shikha Sharma cut short her tenure to December 2018.

The board had extended Sharma's tenure for the fourth time which would have ended in 2021. However, the RBI reportedly expressed displeasure at the board's decision clearing another three-year term of the CEO amid surge in bad loans.

The apex bank was alarmed over a high level of divergence between bad loans reported by the bank and those discovered by the RBI.

Over the last two years, the bank came under greater scrutiny of the regulator for misreporting bad loans. After conducting its annual risk-based supervision, RBI said the bank underreported bad assets worth Rs 9,480 crore in FY16 and Rs 5,633 crore in FY'17.

Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.
Published on: Sep 21, 2018 9:53 AM IST
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