Why Yes Bank shares are falling; key reason behind biggest plunge in 10 years

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Updated: September 21, 2018 2:01 PM

Shares of India’s major private sector lender Yes Bank crashed by 34% in the morning trade, it’s biggest intra-day plunge in a decade after CEO Rana Kapoor’s term was cut short on Wednesday.

Yes Bank share price: “Today’s reaction has got more to do with the surprise element, rather than a thumbs down on the ability of the bank,” Ashwini Agarwal said.

Yes Bank share price:  Shares of India’s major private sector lender saw their biggest intra-day plunge in over a decade after RBI trimmed curtailed the bank’s Chief Executive Officer Rana Kapoor’s term until January 31, 2019.  Yes Bank shares crashed by 34% in the morning trade to hit a 52-week low of Rs 210. Notably, the RBI has trimmed the term of founding CEO Rana Kapoor to January 31, 2019, rejecting the lender’s request to extend his tenure by three years, the bank said in a brief statement late Wednesday.  Further, the apex bank has instructed to look for his replacement by January 2019. 

Yes Bank’s statement

“Reserve Bank of India has vide letter dated September 17, 2018 received today, intimated that Shri Rana Kapoor may continue as the MD & CEO till 31 January 2019, and the Board of Directors of the Bank are scheduled to meet on September 25, 2018 to decide on the future course of action,” Yes Bank said in a statement on Wednesday evening.

Reaction this morning

The shares reacted wildly this morning, as the stock markets were closed yesterday on account of Muharram holiday. Taking stock of the massive plunge, stock market analysts seem to be divided on their assessment about Yes Bank’s prospects. “There is no cogent explanation as to why RBI is not willing to extend his tenure. I think that is the part which is really bothering investors,” Ashwini Agarwal of Ashmore Investment Management told in an interview to ET Now.

Also read: Yes Bank shares crash 34% to 2-year low after CEO Rana Kapoor’s term cut short

Yes Bank share prospects

However, the expert said that he was confident that an organisation of such a size will have a succession plan in place, and the transition will be managed fairly smoothly. “Today’s reaction has got more to do with the surprise element, rather than a thumbs down on the ability of the bank,” he said.

Notably, Citigroup and IDFC Securities have cut Yes Bank share price target. Citi has downgraded the shares to ‘sell’ from ‘buy’ earlier and cut the target price by 39% to Rs 270. According to the firm, the premium attached to the bank’s shares for CEO Rana Kapoor can go away. “Lender might have to defer capital raise, which could slow down growth,” the firm noted. IDFC Securities downgraded the stock to ‘underperform’ from ‘neutral’ and cut target price to Rs 230 from Rs 350.

“Kapoor’s departure will lead to a slowdown in loan and fee growth, which can lead to a sharp fall in valuations. Fresh capital and high net-worth deposits will become difficult to raise,” it said. According to Edelweiss, uncertainty with respect to leadership has created overhang on Yes Bank stock. The house told CNBC TV18 that Yes Bank stock is now trading at a multiple of 1.6-1.7 times, and the stock could be bought with a long term view.

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