YES Bank Shares Decline After Macquarie Flags Asset Quality Concerns

Shares of Yes Bank Limited slipped 2% to hit an intraday low of Rs 18.30 on Thursday. The decline comes after an Economic Times report said that Macquarie Capital sees the private lender facing near term asset quality issues due to COVID-19 induced economic distress.

As per a report by Macquarie Capital referred to by ET, the international brokerage recently met with the Yes Bank management and noted that the lender could see stress in its exposure to the real estate and hotel industry.

"There is going to be a substantial increase in stress in the next 2 quarters as they have large exposure to the real estate and hotel industry where there are likely to be defaults," the brokerage was quoted saying.

Despite the asset quality stress, the report said that the management claimed that they had front-loaded provisions and don't see a substantial dip in capital ratios.

"The management clearly alluded to taking upfront provisions and under a worst case scenario, after adjusting for covid provisions made and recoveries expected in the next 6 months, doesn't expect CET1 ratio to dip below 12% by the end of March 2021 from current levels of 13.4%," the ET report quoted Macquarie Capital further.

In March, a rescue scheme was designed by the Reserve Bank of India for Yes Bank, wherein the State Bank of India along with half a dozen domestic financial institutions became dominant shareholders of the private lender.

Macquarie Capital pointed out that since then a lot of structural changes have happened at the lender. Under the new management, there has been a clear demarcation between risk and business, it said, wherein reporting structures have been realigned in such a way that head of risk & compliance reports to the board while the MD & CEO is not on the credit committee.

"Board is more actively involved in critical decision making, re-branding was suggested by the board, but management felt that the brand has a strong recall and didn't feel the need to rebrand," the report added.

"The management is targeting a 1% ROA by FY23 (estimate) which is expected to be negative for FY21E."

The report also signals that on the business front the bank is on the road to recovery. For the month of October and November, the monthly account openings have been nearly 70,000 compared to nearly 40,000 accounts opened at the peak.