Will SBI Stock Provide Value To Its Shareholders After It Buys Into Yes Bank?

As SBI is likely come to the rescue of the beleaguered Yes Bank and will buy 49% stake in the bank , analysts downgrade of the counter poses a further downward risk in the stock. The stock of SBI on Friday when Indian indices saw the biggest one-day fall ever saw a decline by as much as 7% and closed at Rs. 251.15 per share on the NSE.

Will SBI Stock Provide Value To Its Shareholders After It Buys Into Yes Bank?

HSBC Downgrades Rating on SBI to "Hold" as Against the earlier "Buy" call

After RBI's draft reconstruction plan was announced for Yes Bank and SBI is known to play out a significant role in it, the global rating firm HSBC downgraded the counter to "hold" from the earlier. Also, at the same time, it reduced the target price from Rs. 405 to Rs. 300 per share.

As per the schema by the central bank, the public sector bank initially would take 49% equity in the bank at a price of Rs. 10 per share i.e. with an initial investment of Rs. 2450 crore that will be for newly issued Yes Bank shares.

Also, the rating firm said that the key risk at hand is depositors' behavior as and when the moratorium is lifted. And if liquidity arises to be a problem then there could be a high possibility of merger of Yes Bank and SBI. "If other banks join the rescue over the coming days we would expect this to build confidence in the banking system," said HSBC.

Will SBI be a Good Bet After It Participates In Yes Bank's Revival?

Nobody can be certain of this question, given the global gloom and further as SBI comes to the rescue of Yes Bank, analyst at Macquarie said given the vagaries and compulsions of the government to which these PSBs and companies are subjected there is inherent risk associated with investments in such PSBs and companies. Also, on a broader basis it's the capital of taxpayer whose capital is infused into PSBs and thus ultimately Yes Bank is indirectly being bailed out by taxpayers.

Acquisition in Yes Bank Not Seen to be Good for SBI Bank Shareholders

"It will be incrementally negative for its valuations, as it sets a precedent for nationalisation of any future private losses. Part of this is already captured in the sharp discount at which the stock trades versus private peers," JP Morgan said.

There could be other challenges. "One buys a bank for its liabilities franchise and not for its assets. We are unsure of YES Bank's quality of liabilities franchise, which perhaps could have further got affected due to the current solvency issues. Consolidation would have brought about a lot of integration challenges as well as legal challenges, as we believe SBI Act needs to be amended for SBI to acquire a private sector bank. Even in this case, the deal will require blessings of the regulator as well as the government," Macquarie said.

But if there is a case when the bank SBI infuses capital into Yes Bank, the situation is seen to be positive for all stakeholders involved.

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