As much as I hate to say I told you so in this case, seeing the erosion of value of holdings of so many fellow boarders, the truth is given what Buffett had said about a) there is never a single cockroach in the kitchen and b) all investing being ultimately a game of assessing upside/downside case vis-a-vis probability distributions - I think Yes Bank was a very bad trade post some of the skeletons came of the cupboards in the form of hidden NPA. Smart money sold with vengeance at higher levels and a lot of shareholders are now left holding the stock, hoping rather than logically concluding that the stock should go up. Too much focus on calculated numbers caused LTCM crisis and in a highly leveraged business, reputation and soft factors are probably worth much more than just numbers is an important lesson from the fall of Yes Bank and DHFL. Not to say they may not be a bad buy at these levels for someone logically and with conviction figuring out what is really going on. But for most others, its just a hope based thing. Hope these lessons remain ingrained in us.
Lot of hatred and mis information presented in above analysis, yes bank was not the only bank which was asked by RBI to correct And show as NPA. Several FII had buy rating on stock till 500 level and downgraded 220 just because rana kapoor resigned. Its not a small bank, NII is in comparison to Kotak, what about Kotak where dilution has nit taken place despite RBI several reminderâs. Why Uday Kotak was not sacked by RBI. Ita growing at 50 percent and some persons dont like this.
If you could provide numbers to back what youâre saying, it will be great. I can see, there is more smoke than fire, and that eventually the fundamentals of the stock will speak in the long term. (~3 years or so).
First post alert:
It is correct that Yes Bank is not the only bank which reported significant divergence in asset classification, however, it led the pack in terms of percentage of divergence as can be seen in the image attached. (source:-The divergence declaration - RBI v/s NPAs #4)
2015-16: As per the RBI assessment, gross NPAs were Rs 4925 crore amounting to 5.01% (loan book - Rs 98,209 crore on March 31, 2016)
2016-17: The bank had reported gross NPAs of Rs 2,019 crore for 2016-17. But as assessed by the RBI, the gross NPAs should have been Rs 8,373 crore for that year which meant that assessed gross NPAs were 5.98% (loan book- Rs 139971 crore as on March 31, 2017)
2017-18: Figures not available yet, however, it has already disclosed exposure of Rs 2621 crore to ILFS.
Disclosure.- 14% of portfolio. After shunning the temptation to buy YB for years, I invested at precisely the worst possible time (just before Rana Kapoor was asked to go). Now my YB holding is down ~25%. Divergence is the reason I was staying away.
@Cshar, As per RBI assessment gross NPAs were 5% and 6%, which meant Yes bank was not in the league of HDFC, Kotak et al. I (and probably others) saw that it was relatively undervalued on P/B basis and jumped in, which was a mistake. No point in blaming others. Acceptance of our own mistakes is crucial in improving stock screening process
Penalties Imposed:
- 2017- RBI imposed 6 crore penalty on Yes Bank for its failure to adhere to asset classification norms and its failure to report a cyber security breach of its ATM network.
- 2018- Yes Bank had paid Rs 38 crore in fines to the GST department for alleged violations in domestic remittances
Not classifying accounts as NPA, cyber breach, GST violation etc does not inspire confidence. Yes bank has done well over the years, however assigning same multiples as HDFC bank, Kotak Bank to it was clearly a mistake.
If you would have read my post carefully, I have ended with a note on how too much reliance on public numbers without taking into consideration softer issues wreaks havoc with financial bets especially the ones which are leveraged so much. As an ordinary investor - unlike non-financial companies it is almost impossible to know what is really cooking in a bank or NBFC as ever-greening of loans and constant raising of equity and debt funds can keep a lid over the problem unless either the regulator which has the authority to audit the book of accounts finds out or the problem itself becomes too big to manage.
Now I am not stating that all or any of that is true in case of Yes Bank - I am just stating a very simple observation - that given so many red signals (true or not true is not for us to decide) it was probably a better bet to stay away or sell from a risk/return point of view.
Investing is a game of elimination, not a game of selection. Prudent investors that I know and respect had eliminated this stock from their list quite well and early - whether or not it has given good returns and in what time frame is not my observation here. I am just stating that when the confirmed sign of problem was out (too much of NPA divergence as % of existing NPA block) and Yes Bank was still trading fairly richly ex of recent equity fund raise - it ought to have been sold and not held on to given the risk/return matrix. It is the process which matters.
PS - At the same time, I wholeheartedly support the idea for an investor to develop an alternate and contrarian view based on extensive primary research, industry wide contacts and actual differential ground research to come to a conclusion that these problems are temporary now and Yes Bank needs to be bought at these low levels. My problem is that please dont show me ratio analysis of public data for last few years to come to this conclusion - secondary research only will not only be inadequate but might also be misleading.
While the issues youâve highlighted are definitely real and there is no point in denying that compliance culture/corporate governance is weak at the bank, my thinking is on 2 points:
- Whether the issues are resolvable.
- Can Yes Bank as an institution survive this crisis.
And in my opinion, the answer to these questions is âYesâ - with fresh leadership and new capital raise. Now obviously itâs not an easy task and will take determined+honest efforts on the part of new leadership to achieve.
Purely from a rebound perspective - ICICI Bank touched 260/- at the trough from where it rebounded to 350 today once some light was visible at the end of âlegacy issuesâ tunnel. Axis Bank touched a low of 480/- again at a time when everything was going wrong for the bank. Now itâs at 600+.
Just to take a cue from the start up arena - just this morning I was reading about Palantir Tech which has a $20B valuation but itâs entire top mgmt still practices the old scrappy/hippie ways (attending offices in shorts ,behaving untidily in meetings, being spendthrift for eg.). These problems are making it hard for it to become profitable and evolve as an established player in the tech arena and are delaying itâs IPO as well. Several old investors are looking for exits.
But these problems are resolvable and their CEO is determined to become profitable, by cutting down on spurious expenses/lavish parties/offices and change the image of the company from âhippieâ to âsophisticatedâ. (https://www.wsj.com/articles/palantir-has-a-20-billion-valuation-and-a-pretty-big-problem-it-keeps-losing-money-1542042135)
Similarly Yes Bankâs new leadership will need to change its image of poor compliance/corporate governance if it has to evolve as a large lender, from a mid sized one, as envisioned by it for 2025.
Can the new leadership do that? Yes.
But will they? Only time can answer. Iâm willing to give it time coz the price is too attractive to ignore.
Disc. : Views are biased.
Yes Bank chairman Ashok Chawla resigns over corruption charges
Operation cleanup continues
On one hand its good that all cleanup is happening in one go, but other hand it will certainly hurt investors.
I recall Sikkaâs ouster from infy which hurt but gave nice opportunity to long term investors. Do we have another repeat of similar opportunity?
Why it feels like RBI has switched on the halogen in the night and all rats are running helter and skelter. How come these conflicts were not identified earlier? Thanks to the current RBI governor for much desired cleanup in this bank. I am very sure that we have not seen the last of tumbling skeletons.
Another bankrupt promoter but the same story. This bank has become parking lot for these promoters.
Actually him being a newly inducted member with access to the Board, Kapoors and the entire top leadership, is in a better position to fairly judge whatâs happening. Old timers may just be loyal to the promoter group so as to not raise any kind of protest.
Another perspective is he is just on the S&SC which is anyway temporary.
The banksâs selection committee, which Bhatt is part of, has shortlisted about 10 people as possible successors to the CEO. Two of these people have professional links with Bhatt. Hence, Bhatt thought it was fair that he quit his position to avoid any potential conflict of interest.
Source Economic Times page 16 (16th Nov, 2018)
If you believe in the Company (stock) then go ahead and buy it.
Others have pointed out reasons why they are staying away on account of -
- Doubts regarding disclosures
- They donât see value in the stock and would rather buy something else in the sector.
You may not agree with them, that is ok. But to brush aside anything you donât agree with as negative jibber-jabber is (in my opinion) not valuepickr way.
Disclosure- Highest holding in my portfolio. I think below 180, most of the negatives get priced in. That is assuming gross NPAs do not reach double figures and bank is able to recover at 40-50% of the NPAs. Price recovery, in my humble opinion, will take its sweet time.
https://www.icra.in/Rationale/ShowRationaleReport/?Id=74998
Yes Bank ltd long term ratings placed on rating watch with negative implications
âThe shortlisted names include the head of a foreign bank having a relatively large presence in the country, the chief of a state-run bank apart from the heads of some private sector lenders.â
âThe panel has crystalised the broad criteria which it will be looking at, which includes the necessity for the candidate to have corporate banking experience given Yes Bankâs asset book focus, experience in capital raising and also a clean reputation which will ensure a sail-through with the regulator, the source saidâ.
Yes Bank employees reduce shareholdings in bank.
Sheer sensational news. One may download from BSE on number of shares acquired by employees / Rajat Monga and what % has been sold/disposed off in the last 1 year.
Now everybody is calling it a cleanup . What is the reason behind these changes being called as cleanup? How did these cockroaches came into the kitchen unnoticed? Or is it that these yes men are not needed anymore after RKâs removal?
Old trick by RK - surround yourself with Yes Men and old bureaucrats whose only achievement would be to survive a long career as an IAS officer. RBI must be taken to task for long delayed actions. These few bankers pose systemic risk to the economy.
Everybody needs a team they can work with. Even our PM got his team of bureaucrats from Gujarat to work with him at the center. That doesnât mean theyâre âYes menâ just means a leader wants a team he/she can work with. Some from Yes Bankâs top mgmt have been with the Bank since inception including Rajat Monga.
Just because some people agree on a decision doesnât mean theyâre Yes men. How else do you think decisions will be made if everybody is contradicting everybody else? There has to be someone who calls the shots. Every organisation is run that way.
You position Yes Bank as some criminal enterprise led by henchmen the worst of whom is Rana Kapoor.
I donât think things are that worse. The Bank & its investors, including Rana Kapoor himself, have already paid the price for its NPA underreporting. With leader transition, I donât expect things to further deteriorate.
Of course, I might be wrong. So can many who think the opposite.
Whatever it turns out to be, Yes Bank should prove to be an ultimate test of any investorâs convictions!
This is nothing to do with clean up et all.
Basically, these old directors have been removed so that the new board is acceptable to both parties( Rana and Madhu).
Let us not speculate too much into it and show some empathy for those who have invested in this franchise.