Sebi may probe YES Bank for 'selective disclosure' leading to stock rise

Private lender YES Bank, which faces regulatory action from the Reserve Bank of India (RBI) for selective disclosures of the confidential risk-assessment report (RAR), may now face probe by the Securities and Exchange Board of India (Sebi) because the bank’s revelation led to heavy buying in the stock on Thursday.

The bank’s stock gained 30 per cent on Thursday, which was its highest-ever single-day gain. 

The sharp run-up came after YES Bank issued a press statement on Wednesday, saying said the RBI’s FY18 RAR found nil divergences in the bank’s asset quality and provisioning. 

“Investors who took positions based on this information are likely to be aggrieved. This kind of selective disclosure is not something that Sebi should condone as it could set a bad precedent,” said Shriram Subramanian, founder and managing director of InGovern Research Services, a proxy advisory firm.

On Friday, the central bank warned the bank for publicising part of the RAR and pointed out that the RAR had observed other violations, which were not mentioned in the bank’s press statement.

“The RAR also identifies several other lapses and regulatory breaches in various areas of the bank's functioning and the disclosure of just one part of the RAR is viewed by RBI as a deliberate attempt to mislead the public. The issuance of the press release (of Wednesday night) has, therefore, been viewed seriously by the RBI and could entail further regulatory action/s,” the bank's communication (of Friday) read.

The sharp spurt in prices on Thursday had added more than Rs 2,000 crore (notional gains) to promoters’ wealth. The data analysis takes into account the shareholding pattern as of December 31, 2018, and Thursday’s gain in share price. On Friday, the stock was down by about 1 per cent. 
 

Albeit not a significant amount, insider trade disclosures showed that three of the bank’s senior executives sold shares worth Rs 1 crore in Thursday’s trade. 

An e-mail sent to the bank did not elicit any response. 

Experts say the intent of the bank in disclosing a part of the RAR cannot be judged unless the entire report is disclosed. 

“If there were certain negative things in the report and the bank only highlighted positive points then YES Bank's intention is questionable. If there were no negative things and only routine observations then the bank's intention is not as much in question,” said J N Gupta, co-founder and managing director, Stakeholders Empowerment Services. 

Gupta added all of the report should be made public for creating a more transparent system. 

More than 280 million shares of YES Bank — combining the National Stock Exchange and BSE volumes — were traded on Thursday. This was six times the two-week average volume seen in the stock. Friday too saw combined volumes of 152.4 million shares.

As the bank’s disclosure of the RBI communication appeared on exchanges only after Friday’s market closing, investors building heavy positions since Thursday can face the heat when market re-opens for trade on Monday. 

“The stock went up on the basis of partial truth as it turns out, so expect to see a correction on Monday,” said Ambareesh Baliga, an independent analyst. 

The sell-side analysts, which had turned bullish on YES Bank after its Wednesday's disclosure on divergences, are bracing for near-term volatility. 

"The news flow is a sentiment dampener and the stock is likely to see pressure in the short-term. While we would like to get more information and clarity from the bank on this matter, going by the present information available, we are of the view that long-term outlook for YES Bank should not be much impacted," said Lalitabh Shrivastava, AVP-research at Sharekhan.