‘Buy’ on Yes Bank, nil NPL divergence is a major positive – Jefferies

By: |
New Delhi | Published: February 19, 2019 1:50:41 AM

Any contravention of/non-compliance with the above instructions would attract penalties under the Banking Regulation Act.

yes bank, namking sector, banking industryYES could face penalties (it remains to be seen what form these might take), but we do not view its disclosure as out of line with peers.

To our eye, YES seems to be a casualty of the RBI defending its decision not to extend Rana Kapoor’s term by alluding to lapses and regulatory breaches, despite supplying a clean chit on NPL divergence. YES could face penalties (it remains to be seen what form these might take), but we do not view its disclosure as out of line with peers.

In our view, ‘nil’ divergence is a major positive and ticks an important box in terms of investment rationale. Retain ‘Buy’.

On April 18, 2017, the RBI asked all banks to: (1) disclose the NPL divergence in a specified table format wherever (a) a provision shortfall accessed was in excess of 15% of net income, or (b) additional NPLs accessed were 15% ahead of gross NPL formation, or both.

Any contravention of/non-compliance with the above instructions would attract penalties under the Banking Regulation Act.

We understand that the Risk Assessment Report (RAR) is always marked ‘confidential’. Over the past two years, the NPL divergence mentioned in RAR across banks has been one of the most sought after pieces of data by FIIs, DIIs, retail investors and market analysts as volatile stock performance post such a report demonstrates.

As a result, banks have always provided information on NPL divergence to the investment community, irrespective of whether the divergence was reportable or not, or ‘nil’ – in varied ways, viz. quarterly earnings releases, press briefings, analyst calls etc.

Assuming none of these are/were in breach of confidentiality (at least we haven’t heard anything from RBI publicly), we don’t think YES’s action qualifies either. In the past, we have seldom, if ever, come across instances wherein banks have provided details on lapses/breaches which were part of the RAR when they disclose NPL divergence. We laud YES Bank for having filed a formal exchange release – the information being both price sensitive and material, like it has filed other announcements within the bank, mostly unpleasant ones in the past six months.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition
FinancialExpress_1x1_Imp_Desktop