YES Bank makes sharp U-turn; slips 17% from intraday high to hit 52-wk low

The board will decide the future course of action after the RBI curtailed the term of its MD and CEO Rana Kapoor and asked the bank to look for a replacement by January 2019.

Making a sharp u-turn, shares of YES Bank slipped 7 per cent in the afternoon trade on Tuesday ahead of the board meeting to be held later in the day to decide the future course of action after the Reserve Bank of India (RBI) curtailed the term of its managing director (MD) and Chief Executive Officer (CEO) Rana Kapoor and asked the bank to look for a replacement by January 2019.

In the early trade, the stock rose 6 per cent. At 01:30 pm, the stock was trading 5.50 per cent lower at Rs 213.80 apiece on BSE. It slipped 17 per cent from intraday high of Rs 238.60 apiece to hit a fresh 52-week low of Rs 198.65. 

“Reserve Bank of India has vide letter dated September 17, 2018, intimated that Rana Kapoor may continue as the managing director (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 on Wednesday, September 19, 2018, in a regulatory filing.

After the announcements, the stock of YES Bank had slipped 29% in past two trading days till Monday. It touched a 52-week low of Rs 210 on Friday in intra-day trade.

Rana Kapoor, who has been MD & CEO since the bank’s inception in 2004, had sought a three-year extension till August 31, 2021.

“We had assumed a low probability of Rana being rejected by RBI, but it has now materialized. We think it may be too soon to accurately model cuts to growth and EPS forecasts at this time. Formal communication from the board, likely after Tuesday’s meeting, will be a key monitorable for us before re-evaluating our investment thesis on YES Bank,” analysts at Macquarie Research said in a note.

“This development has come in as a clear setback for the bank and will have implications on YES Bank’s growth plans. The potential change in business strategy post the management change, as YES Bank goes for a course correction and fully adheres to the RBI’s requirement, will likely have an impact on its loan growth/fee income, even as the capitalization level already remains modest,” Motilal Oswal Securities said in a recent report.

We note that while in the past the stock has reacted negatively to any such adverse incidents, the price performance over the next one-year following a crisis has always been impressive, it added.