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6 Reasons Why Yes Bank Shares Surged Over 150% In 3 Days And Why You Should Be Cautious


Of late, shares of Yes Bank are on a relentless rally, climbing as much as 73 percent on Tuesday alone. Investors are surprised by the sudden surge after the troubled bank reported its biggest-ever quarterly loss on Saturday and the RBI mandated resolution scheme for the bank that imposed a lock-in period for those holding over 100 shares.


Shares of Yes Bank have climbed nearly 300 percent from Rs 16.20 on 6 March (the day after the moratorium was placed) to Rs 64.15 in intraday trade on 17 March. In 3 days, the stock has climbed 156 percent from Rs 25.05 per share (12 March closing).

6 Reasons Yes Bank Surged Over 150% In 3 Days & Why You Should Be Cautious

Possible reasons for the positive outlook on the stock could be:

1. Investment interest shown by major Indian banks

Even before the moratorium was imposed on Yes Bank by the RBI, news reports on the State Bank of India's (SBI) interest in investing in the crisis-hit private lender had the share price of Yes Bank rising. With a fast planned resolution scheme under the leadership of RBI appointed administrator Prashant Kumar, the confidence of investors on the regulatory system was supported.


By Saturday, major financial institutions, including Kotak Mahindra Bank, ICICI Bank, Axis Bank, HDFC, Federal Bank and IDFC First Bank announced that they were investing in the restructured entity via the equity route.

A total investment of Rs 10,000 crore will be made by these banks.

The extent of interest shown by these leading names in the sector has been impressive, making it look like a good opportunity to buy the stock.

2. Lock-in period and low trading volumes

In the resolution scheme for Yes Bank, that was approved by the Cabinet on Friday, it was informed that the new large investors (the banks), as well as existing investors with more than 100 shares, will not be able to sell over 25 percent of their holdings for three years.

The lock-in, while imposed to assure stability in the core capital, reduces the trading volume in of these shares, causing a surge in the price.

Note that this restriction is applicable only on investments made till the evening of 13 March 2020 and not after that.

Additionally, Stockbroker Zerodha issued an update to its customers that shares of Yes Bank bought on 12, 13 and 16 March have not been delivered by the clearing corporations yet, causing the shares to not be reflected on an investor's portfolio for making a sale.

Hence, recent buyers of the stock are not able to sell their holdings, lowering the trade volume further.

As for SBI, the "Investor Bank" as per RBI restructuring scheme for Yes Bank, the public-sector bank will not be allowed to reduce its stake to less than 26 percent in the 3 year lock-in period. Currently, SBI has agreed to invest Rs 7,250 crore for 49 percent of the stake in the troubled bank.

3. Change in management

RBI appointed administrator for the resolution plan of RBI, Prashant Kumar, will take over as Yes Bank's CEO and MD. Kumar is former Chief Financial Officer and Deputy Managing Director of SBI.

The resolution scheme release by the Ministry of Finance on Saturday also said that Sunil Mehta, former Non-Executive Chairman of Punjab National Bank will act as the Non-Executive Chairman of the entity.

Other board members will include Mahesh Krishnamurthy and Atul Bheda as Non-Executive Directors.

The change in management may be a relief for investors after several discrepancies found by regulatory authorities, including alleged under-reporting of non-performing assets in the past. Yes Bank has been in the news for all the wrong reasons for a couple of years now.

4. Moratorium lifted earlier than scheduled

The moratorium imposed by RBI on 5 March which restricted withdrawals to Rs 50,000 per depositor was scheduled to end on 3 April. As assured by SBI and the administrator, the moratorium ended much sooner with Yes Bank informing its customers that it will resume its services in full at 6 pm on 18 March.

The faster than expected recovery and assurance of depositors money spells good for the bank.

5. RBI's assurance

RBI has been monitoring the restructuring plan of Yes Bank and on Monday, at the press briefing, Governor Shaktikanta Das said that if needed, the central bank would provide additional liquidity support to the crippled lender.

6. Moody's rating upgrade

This is a much recent development. Late in the evening on Monday, Moody's Investors Service upgraded Yes Bank's long-term foreign-currency issuer and foreign currency senior unsecured MTN programme ratings to Caa1 from Caa3 and (P)Caa1 from (P)Caa3, respectively. It also changed the credit outlook on the lender from negative to positive.

A word of caution

Trade in the stock with caution. Analysts interviewed by the Economic Times said that the stock may be witnessing what's called a "sucker rally" wherein there is a bounce in a market downtrend driven by enthusiasm to go in for falling stocks.

The movement could be speculative as the free float of the counter has been lowered by 75 percent, which means the movement in the stock, either way, can be sharp.

Analysts told ET that the rally may be short-lived and may soon reverse course.

Further, all is not certain on the bank's revival and its hard to say if customers of Yes Bank would want to continue with the bank after the moratorium is lifted on Wednesday.

This has been the second consecutive failure of a Mumbai-based bank within the current financial year after PMC Bank.

After the Yes Bank crisis, Uddhav Thackeray-led Maharashtra government mandated all its departments to shift their accounts from private to state-run banks. This instruction was issued by the state government's finance ministry despite RBI writing to the states to not transfer their deposits out of private sector banks, citing misplaced apprehensions about the safety of deposits with private lenders. The change will be effective from 1 April.

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