Instead of one-eyed approach, RBI should have dealt with Yes bank and Bandhan bank in a more sensitive manner

Any organisation is a contribution multiple stakeholders including Customers, partners, employees, shareholders, and general public. Recent happening in yes bank and the significant drop in its stock price has become the most talked about topic in the past of couple of weeks. In the absence of serious violations amounting to fraud or connivance, the RBI should have kept investor sentiment in mind while taking actions against Yes Bank.

While it took Rana Kapoor 14 years to build yes bank to this size and create wealth for all stakeholders involved, it took 3 to 4 weeks for regulator and other promoter of yes bank Madhu Kapur to bring down the market cap of yes bank by 40%. Retail and small investors lost Rs. 30,000 crore in the past 4 weeks. Someone should take responsibility for this!

It is not just YES BANK. RBI’s one-eyed actions overreached Bandhan Bank too. RBI barred bandhan bank from operating new branches. The restriction, that of seeking RBI permission to open new branches, is a throwback to the pre-liberalisation era, while we are actually close to two decades of financial liberalisation. Usually such restrictions are imposed when some crisis engulfs a lender — unlikely for a bank like Bandhan. RBI tasered Yes Bank and Bandhan. It needs to develop the regulatory finesse that acknowledges the sensitivity of other stakeholders involved – like customers, investors etc.

Even crisis-ridden public-sector banks, neck deep in losses, have not faced the kind of activism seen in Yes Bank and Bandhan Bank. Has the salary of a public-sector bank CEO being frozen amid all the mess that has happened in the sector? Nor has any CEO been removed from office just due to NPA divergence (other than for big-ticket fraud cases).

The kind of restrictions imposed recently on these private banks could probably hold good for prompt corrective action (PCA) candidates. In the absence of serious violations amounting to fraud or connivance, such regulatory restrictions might send a wrong signal to investors and distort investor perception. Obviously, the question uppermost on the minds of investors would be this: Which lender will face the music next? Then there is duplicity of stance too. The government hasn’t diluted its ownership in state-run banks but wants private sector banks to do it.

Not just public-sector banks, the new entrants do not have a level playing field with their old private peers either. Contrast with Kotak Mahindra Bank (KMB). Though the RBI has been demanding paring promoter shareholding in private banks to 40% since 2012, KMB was granted time until September 2014, a full one year after the new bank licensing regulations were put in place. Moreover, KMB will meet the 15% promoter holding norm by March 2020, 16 years after its incorporation, while new entrants need to comply with the norms within 12 years of operations. Doesn’t it tantamount to regulatory arbitrage?

References: Economic Times, Mint

Yes Bank set Street on fire with 10% rise on back of stellar numbers; silences critics on Asset Quality

Yes Bank positively surprised markets with a stellar set of numbers reported earlier today and literally lifted the mood on the street with their robust results and pushed the Nifty and Bank Nifty into green.

Key highlights from the results announcement

  • Robust Growth– Total assets grew by a whopping 45%, with loan growth even better at 54%, making the balance sheet more than 3 lakhs crore. This was on the back of very significant loan growth
  • Strong Earnings Delivery– The bank beat street estimates by posting an excellent 29% growth in PAT to Rs. 1180 crore for the quarter and 4225 crore for FY 18
  • Best Asset Quality amongst peer banks- Most impressive was the improvement in Asset quality, with large fall in both GNPA and NNPA. Credit cost was contained at 75 bps

While there are several positives to Yes Bank beyond the numbers, some of the most important aspects are –

  1. Highly detailed disclosures– Yes Bank had been on the receiving end of RBI’s supervision and was the first bank to report divergences in Q2 FY18. That had created an overhang on the stock. This time the bank has literally gone overboard on disclosures giving a highly detailed low down on Asset Quality. This has hugely impressed even the most pessimistic analysts and will be a huge positive for the bank in the next quarters, where they have literally handled almost all the divergences reported. The low down of these disclosures also highlight the very impressive movement on reducing the NPAs, becoming the only bank to post significant improvement in asset quality.
  2. Growth, growth and more positive growth– Yes has always been the best private bank for growth. The results this year have seen phenomenal loan growth of over 50%, highlighting the overall impetus in the economy. Further, the Retail franchise of the bank is seeing very impressive and granular growth which will make Yes command much richer valuations. On closer look, their retail and MSME business is now fully delivering and will help the bank generate more CASA as well as far more granular and continuous fee incomes. CASA ratio is already stable over 35% and contribution from the highly profitable Retail Assets business is also clocking impressive growth. All this will significantly enhance profitability in the future quarters.
  3. The reappointment of Rana Kapoor is probably the biggest positive. Rana Kapoor has single handedly established Yes Bank from inception into a banking powerhouse making annual profits of over Rs. 4200 crore. Rana has also ensured that Yes continues to impress on softer aspects like Technology, Talent Management and CSR. Rana Kapoor’s track record has been flawless in all aspects of leading the bank as a promoter CEO


Fundamental Analysts, Traders and Commentators were in awe of these excellent set of numbers and I expect a significant re-rating of the Yes stock by all major brokerages in the next few days. Inspite of the 10% rally on the counter post results, Yes continues to trade much cheaper than most comparable private sector peers largely because of skeptical analysts. Clearly all the skeptics have been proved wrong today.

The stock is trading 13 times FY 19 earnings compared to 26x for IndusInd and HDFC. I believe the stock will cross 400 in next few trading sessions and is well headed to breach the all important 500 mark in the coming months.

If you are a medium or long term investor, its time you Say YES to Yes!


What you need to know about Yes Bank Q2 Results

YES Bank is India’s 5th largest private sector Bank and has been one of the best performing banks over the last decade.

The Private sector lender announced its Q2FY18 results and it proved to be a historic quarter for the Bank as its net profit rose 25.1 per cent year-on-year (YoY) to Rs 1,002.70 crores– the 1st time that the quarterly profit crossed the mark of INR 1,000 crores..While the Bank saw a rise in its Non-Performing Assets (NPA), the ratio at 1.82 percent is still better than most of its peer Banks.

Another key metric “loan growth” also showed momentum with a 35% year-on-year growth in total advances, which was spurred by 78% growth in Retail Advances. This growth in retail advances shows that the Bank is garnering market share in Retail liabilities and deposits. With the CASA ratio having improved to over 37%, this is definitely a good sign for the Bank’s performance.

The bank faced a setback as Divergence as assessed by RBI was at INR 6,355 crore. However, it was good to note that the Bank has been able to resolve/recover over 81% of this Divergence and the impact of this divergence to the NPAs was at INR 1,219 crore. This shows strong recovery mechanisms and should continue to help the Bank with its Asset Quality. Yes Bank has also been growing by leaps and bounds in the Digital Banking space and has built some great solutions to address various payments needs of consumers on corporates. Case in point, is their UPI – Unified Payments Interface leadership where they have grabbed a market share of 65% in merchant payments on the UPI platform.

In summary, except for a minor blip in Asset Quality, the Bank has shown strong operating performance and is capitalising on its growing retail franchise as well as increased digital capabilities backed by technology.