Mutual fund houses have sharply pared their stake in private sector lender Yes Bank.
According to the data on ACE Equity, mutual funds stake in Yes Bank fell to 5.09 percent as on December-end 2019, from 9.26 percent stake in September-end.
This is the lowest stake that mutual fund houses held since March 2013 when the stake had dropped to 3.75 percent, June 2013 dropped to 5.44 and March 2005 it had dropped to an all-time low of 2.4 percent.
Fund houses attributed the fall in Yes Bank stake to concerns over the quality of bids received from strategic investors and on worries that the Reserve Bank of India may not give a go-ahead for investments from SPGP Holdings and Erwin Sigh Braich.
On January 10 at its board meeting, the board decided to not proceed with the proposed investment offer of Erwin Singh Braich/SPGP Holdings while it is open to considering the $500 million offer from Citax Holdings and Citax Investment Group in the next meeting.
MF houses are also concerned over mounting bad loans and said there is a need to clean up their loan book.
Brokerage Calls
On January 14, shares of Yes Bank fell 13 percent in intra-day deals on as brokerages remained bearish on the stock amid uncertainties over capital raising plans.
Kotak Institutional Equities maintained a 'sell' call on the stock and cut its target to Rs 40 from Rs 55 per share. The firm is of the view that there is no strong visibility of 15 percent RoE or 1-1.2 percent RoA in the medium term.
It is of the view that earnings will likely be volatile in the medium term. Fundraising delay raises concern on near-to-medium-term prospects.
Also, the share price took a beating after the company's independent director Uttam Prakash Agarwal submitted his resignation. Agarwal resigned citing "serious concerns" on the state of affairs of the private sector lender and deteriorating practices.
Morgan Stanley has also retained an underweight call on the stock with a target at Rs 25 per share. According to Morgan Stanley, the uncertainty around the quantum and pricing of capital raising continues. The elevated asset quality stress will weigh on the stock price, it added.
Also, rating agencies have also cut their long and short-term debt ratings on Yes Bank due to the uncertainty and delay in fund-raising.
"There is continued uncertainty related to quantum and timelines of raising equity capital, which would keep the bank's capital buffers at low levels and provide lower cushion to absorb any losses on account of higher provisioning requirement due to weakening of asset quality," the ratings agency said.
The rating downgrade necessarily factors in the bank’s higher levels of slippages to non-performing assets (NPAs) in Q1 (Rs 6230 crore) and Q2 (Rs 5,950 crore) and its expectation to continue at similar high levels for the ensuing two quarters of FY20.
Also, the bank’s substantial exposure to sensitive sectors, groups and accounts; uncertainties over raising adequate capital; and maintaining the capital adequacy ratios above the minimum regulatory requirement as of March 31, 2020 are the other key constraints.
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