YES Bank slumps 8%; UBS downgrades on loan exposure

UBS has slashed FY16 and FY17 earnings estimates by 15 percent and 16 percent respectively to factor in higher credit costs of 104 basis points. It expects 13 percent earnings growth in FY16.

July 08, 2015 / 16:00 IST

26 Aug, 2025 12:21

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Shares of YES Bank slumped 7 percent intraday on Wednesday. UBS has downgraded the stock to sell and slashed target price to Rs 740 from Rs 1000 per share. One of the major concerns that the brokerage points out is the private lender's increased exposure to financially stressed companies, which is up 300 percent in three years.

UBS has slashed FY16 and FY17 earnings estimates by 15 percent and 16 percent respectively to factor in higher credit costs of 104 basis points. It expects 13 percent earnings growth in FY16.

The brokerage is worried that these loans could be at risk given a gradual economic recovery and continued stress in sectors such as steel, power and construction. "Loan approvals to our sample set of companies are estimated at 125 percent of net worth and 19 percent of outstanding loans," it says in a report.

As per the brokerage's estimates, YES Bank's loan approvals to leveraged groups such as JayPee, Essar and GMR are now equal to 13 percent of outstanding loans. "We are also concerned about loan approvals to stressed companies backed by collateral such as current assets and unlisted shares. Among the banks in our sample, the share of loans approved on subservient charges was the highest for YES at 20 percent," UBS explains.