Yes bank

(sachit) #532

I wouldn’t worry about it, according to Annual report of Reliance Naval, its Consolidated default amount to Yes Bank is 778 lakhs - this is the total amount as Reliance Naval clearly states in the notes to accounts that bankers have asked for all their loans back. Also, chances are that since the amount is low, it was probably against some Bank Guarantee (My assumption) which are usually covered by FDs.

Diverging explanation welcome.

(jainnitinp) #533

(weblinsolutions) #534

@sachit Are you sure the exposure to Reliance Naval is not higher than that? I had read some where that the exposure is around 500 odd crores.

(AKGupta) #535

This is absolutely right. I second it. I’ve seen same behaviour in case of MGL (invested) when one of the promoters sold recently because of its own reasons.

More important than anything else is how investors behave during times of crises. People who jump ship at the first instance of a problem/crisis will never make any substantial returns. As Buffett says, be greedy when others are fearful. Fear is what i see here on the forum. Yes, banks, either public or private, are beaten down due to lots of issues - NPA underreporting, evergreening of loans, leadership instability, corruption allegations and more. But this is what happens when a lending cycle turns. People find out all the loans they made during boom period are not going to be paid back because businesses are not earning. They then resort to all these unethical practices to save their heads which now the regulator is attempting to correct to good effect. Doesn’t mean the whole institution is a fraud or is irredeemable right?

Financial institutions in the US should be an eg. These institutions participated in unethical transactions related to housing mortgages. Even credit rating agencies had a role to play.
But did Goldman Sachs die after 2008? Or any other institution apart from Lehman and Bear? They had to pay fines, do less business because of more regulation but the biggies survived. Many are bigger than their former selves. And they’re again well to do with the US economy firing on all cylinders.
I look at crisis as an opportunity. Such events happen with the most ethical, most efficient of organisations but then things change, times change, people change, laws change and things start to take a turn for the positive. I remember a dialogue in a Keanu Reeves movie : “It is only at the precipice that people change.”

Tough times afflict every company, every industry and these times test investor patience and conviction. And it is only those investors who know how to make good use of rare opportunities who make above market returns.

I think there are enough tailwinds for the sector and Yes Bank is a well placed institution to make good use of those tailwinds. In my opinion, these times of crises are temporary as the issues with the bank are resolvable and promoters have a significant skin in the game to let the institution suffer and eventually die.

Disc.: Views obviously biased

(cathene) #536

What about Lehman ? Still there was one to fall. Only when the tide stops we know who’s swimming and who’s drowning

Disc no investment

(Mikesingh) #537

While looking at yes bank, one would need to be honest in asking what the crisis is?
Rana kapoor exiting in 2019 jan?
If one feel that is an issue, why? Banks do get new heads. So this is not an issue.
Now to NPA, banks by very nature of its business, they lend many X to their asset. So the value or moat of the business remains in quality lending, where the lent out money can be recovered.
A small default can erode the asset on books drasticaly.
If any1 who read last few year annual report and auditors report, they could easily figure out, which company have they lent to and how much is exposure to many bankrupt companies.
Its not just reliance Naval, but few others.
They have failed to classify such accounts properly to NPA. Also one would check various accounts under restructure loans. See the status of such companies, whats their status?
Being a corporate lender has its own pro and con.
Guessing how big the elephant in the room is vague.
Or thinking it is jus a cockroach and market has discounted it is also vague.
Let the devil be out, see the market response to it and decide.
Eventualy trust ur hardwork, study it, than just guessing and self comforting with all is well.


(AKGupta) #538

Lehman had the most exposure to mortgage backed toxic assets out of the bunch. It’s CEO was a highly disliked & arrogant one I read in reports at the time, so nobody wanted to work out a solution with him (in contrast to RK who is widely respected across the industry, even NDA ministers visit his house). US govt had to set an eg, In India, if any bank should be allowed to fail it should be banks like PNB or a dozen other PSBs.

RBI is already setting an eg. in India by declaring divergences, making banks acknowledge bad loans sooner, ousting bank CEOs, govt merging bad banks with good ones & more concrete steps. These are going to help resolve current issues as well as make sure they don’t happen again.

And even if RBI found out divergences in Yes Banks NPAs, they were later upgraded to standard accounts or sold to ARCs right?

(s) #539

Money control view Investors will have many more questions till the dust settles. In the interim, the stock is expected to remain volatile with a downward bias. Investors should exercise caution and shouldn’t bottom fish in a haste till clarity emerges on the quality of its books.

(AKGupta) #540

For a moment it seemed there was no bottom to this stock! :joy:

(sumit680) #541

yeah…awesome panic moments…
i have a simple logic…BVPS for the previous year was 111.85
If we reduce 8.7% of it as NPA. it becomes 102.11
Assigning a PBV of 2.5 will give us a price of 255

This figure of 8.7% was calculated earlier when there were news of power sector companies going bankrupt…
Bought 80 shares at 254

But the NPA shpuld not be more than 8% i feel

(vaibhav) #542

I would say Rajat Monga would be a good choice for CEO. Provided answers with good clarity on concalls and interviews.

(pkk123) #543

Your calculation is wrong sir. Reduce BV by NPA X leverage.

(sumit680) #544

okk…in that case im not aware of the method to calculate…

  1. how can we find the leverage…
  2. and what should be the maximum percentage of NPAs we should allot…

i request to guide me quickly so that i can exit my position…its still in profit…haha

(pkk123) #545

I am no expert myself but Yes Bank is leveraged more than 10 times. Please don’t make investment decisions based on my info though.

(sumit680) #546

yeah …morning star is showing leverage as 12…however lets talk even simply…

  1. The total book value of yes bank stands at 23790 cr
  2. Washing of book value by 8.7% will mean a reduction of 2069.77 cr…
  3. Are we actually looking at a reduction of 2069 cr from book value…
  4. Divergence for fy 17 was 6335 cr…

what does that mean…can there be a washout of 6335 cr from its books…that will be 26% reduction in book value…
im not well versed with the calculations…but we need to calculate the worst possible scenario here

(dprashant) #547

It’s 10X leverage so if NPA 10% which can get zero recovery in that case technically it will be close to bankcrupty situation.
Plo note that it’s a what if scenario only.

Disc. Invested at added few today

(sumit680) #548

in your calculation, NPA has to be put as a percentage thing or as an amount…

(sumit680) #549

or shall we assume the worst case scenario as the complete divergence reflected by RBI previously which was 6335 cr…

In such a case the BVPS will reduce to 81.7
and the price at a PBV multiple of 2.5 will be 204…:disappointed_relieved:

(Varun) #550

%age of NPA is to be calculated on Loan Book not Book value. Loan book as per this presentation made on 29-08-2018 is Rs 203500 cr. 8% of this will be Rs 16300 cr about…

Which means the net book value will be about Rs 7500 cr.

No. of Shares = 230.93

This implies BVPS of Rs 32.47 (7500/230.93)

This is a calculation taking in mind 8% NPAs without any recovery…

Disc: Invested

(sumit680) #551

it means, if i want to justify a price of 255 at PBV of 2.5, the capacity of the bank to absorb addl NPA remains onlt upto 2000 cr which is approx 1% of total BV…

Thanx a ton for enlightening me Varun…i have exited my position without any damage…

Its better to wait and watch