A 22.8% fall in YES Bank’s share price on Tuesday pushed the management to release select operational metrics and also engage with analysts an hour before trading began on Thursday.
For listed companies, silent periods are sacrosanct wherein the management is rule-bound to avoid discussions on the financials and the way forward. However, when YES Bank’s share price registered an intra-day decline of 29.9% on October 1, there were enough reasons for the management to get into damage-control mode.
A press release issued by the bank on Wednesday said that the bank’s material drop in share price “was primarily on account of the forced sale of 10 crore equity shares (3.92% of the Bank's equity share capital) triggered by an invocation of pledge on the equity shares of a large stakeholder”.
Additionally, the bank dispensed headline information pertaining to its liquidity coverage ratio, gross advances and deposits as of September 30. The release also noted that the “information, being released ahead of the official announcement of the financial results for the quarter ended September 30, 2019, is subject to approval by the Audit Committee of the Board, Board of Directors and review by the statutory auditors of the Bank.”
That was not all. The bank arranged for a conference call with analysts at 8 am which lasted for over 48 minutes where YES Bank’s MD&CEO Ravneet Gill and his team took some hard questions. Looking at the share price behavior, it seems that Gill and his team will have some respite, as the stock touched its upper circuit with opening price of ₹35.2, a 10% increase over the October 1 closing price of ₹32. At one point in the pre-opening session the share price touched ₹39.8 (plus 24.38%) also. Later, during the normal trades, the share price touched the day’s high (until 9.45 am) of ₹39.9, 24.69% above the October 1 closing price of ₹32 a share.
In his opening remarks at the analysts call, Gill emphasised that since the beginning of the first quarter of FY20, the bank was conserving capital and also trying to stabilise asset quality. Touching upon the numbers dispensed in the October 2 release, Gill underlined that “the Bank had a Liquidity Coverage Ratio in excess of 125% as on September 30, 2019, which is well above the minimum regulatory requirement of 100%”.
On advances, Gill highlighted that YES Bank’s gross advances aggregated to around ₹2.32 lakh crore as on September 30, 2019 (compared to ₹2.42 lakh crore as on June 30, 2019) with a higher share of retail advances as compared to June 30, 2019. While the reduction in advances was effected to enhance capital efficiency, Gill said that historically high growth was the calling card of YES Bank. “But in the last two quarters we have proved that we can also deliver a push back to conserve capital,” a confident sounding Gill told analysts.
The release highlighted that YES Bank’s deposits aggregated to nearly ₹2.09 lakh crore as on September 30, 2019, and the bank’s current account – savings account (CASA) deposit ratio improved to around 30.8% in September 2019 quarter as compared to 30.2% in June 2019. “In an environment where banks in general are facing CASA degrowth, YES Bank’s CASA growth is encouraging,” said Gill. “We have been able to granularise and retailse the deposits which will help to bring down the cost of funding,” he added.
He wasted no time to justify his reason for engaging with the analysts. Gill highlighted that the share price adversity began since September 18, when one of the promoter’s stake-sell began for the purpose of personal deleveraging. “The reduction is share price is not reflecting the bank’s core operating metrics which are otherwise robust,” claimed Gill.
Among the equity analysts on the conference call, Suresh Ganapathy, who heads the financial services research at Macquarie India, was quite upfront to ask the reason for absence of chief financial officer Rajat Monga on the early morning call. Monga's stint at the bank is as old as the bank. The analysts conference call intimation did not list his name as the call participant, and instead mentioned Anruag Adlakha as group CFO. To Ganapathy’s query, Ravneet Gill disclosed on the call that Monga is ‘moving-on’ from YES Bank.
Ganapathy brought up a recent media interview in which Gill said that a prospective investor had met key functional heads of the bank, and the latter were pretty positive about the bank’s future prospects. Ganapathy, while quoting big names including Monga and Ashish Agarwal, YES Bank’s chief risk officer, asked for the correlation between Gill’s comments on behalf of his key personnel and their selling their shares.
Gill said that the employees have used leverage to exercise their ESOPs (employee stock option plans) which is a standard practice. “There were personal commitments for some, and for some others the motive to sell was to deleverage,” said Gill, adding their loyalty to the bank was intact.
Another analyst on the call pointed at YES Bank’s offshore bonds which quoted between 10% to 11% dollar yield and nearly 15% rupee yield. To that, Adlakha said that currently there is no reliance on capital raising through routes where the higher yield would become a hindrance. On insistence of the analyst, Adlakha did admit that “yes, it does send a bad message in the current time”.
Adarsh Parasrampuria, banking analyst at Nomura, raised concerns on the current stock price of YES Bank, and its impact on the quantum of the bank’s capital raising plans. ”We will not raise capital at any price,” Adlakha said. “We can raise capital organically by selling part of our loan book,” he added.
On a related question from Rahul Jain, head of India research at Goldman Sachs, Gill explained that YES Bank was looking at three constituencies of investors for its capital requirements, namely private equity investors, strategic investors, and family offices. “The bank is open to a bigger dilution,” said Gill.
Dipen Sheth, head of institutional research at HDFC Securities, while detailing the bank’s sector-wise exposure which he felt had grey shades, asked Gill and his team about their confidence in the asset quality of the bank. Agarwal replied that “we are fairly confident that there is no incremental stress building in our books”.
Sheth also asked whether a merger was discussed within the bank and also with the regulator Reserve Bank of India (RBI). Gill, who had discussions about the happenings at the bank with the RBI and the ministry of finance, said: “Both want to see a very strong and ‘independent’ YES Bank bulging back soon.”
In his conclusion, Gill reiterated that the share price movement of recent days should not become a proxy for YES Bank. Separately, in a press release dispensed on October 3, issued jointly by Yes Capital (India) Private Limited (YCPL) and Morgan Credits Private Limited (MCPL) – both promoter entities of YES Bank controlled by Rana Kapoor and his family, dated October 2, said that the two entities had to sell their highly precious promoter shareholdings in YES Bank at deeply discounted prices. “The decision to divest our shares at undervalued share price levels, considerably below even the book value (<0.5x multiple) was taken under compelling circumstances with the sole purpose of deleveraging MCPL and YCPL. Less than 0.5 times the book value was taken under compelling circumstances with the sole purpose of deleveraging MCPL and YCPL.”
“We are highly dejected that our family shareholding in YES Bank was sold at such dismal price levels, despite the Bank having created long-term shareholder value and over 20,000 jobs during the last 15 years,” the release added. “We firmly believe that the Bank led by its highly capable management team and Board, is firmly positioned to continue on its growth path and deliver value for all stakeholders as it did consistently over the last several years since its commencement in 2004.”
Until 10.35 am, at the day’s high price of ₹41.4 – the share price grew by 29.38% and continued to trade in the green with the upper circuit value of ₹35.2 a share being the day’s low price.
