Japanese brokerage firm Nomura has suspended the coverage of Yes Bank, saying the private lender was damaged beyond repair.
Though the government took over the bank to prevent a collapse and the Reserve Bank of India has come with a restructuring plan for the lender, Nomura seems unimpressed.
"While Yes Bank's going concern risk is now minimised post RBI's restructuring plan (Rs 10,000 crore of capital infusion by banks), in our view the bank is damaged beyond repair to fundamentally evaluate any business/investment case," the brokerage said.
Nomura says Yes Bank will remain on life support for a long time and is clearly not out of the woods, given the +10x dilution by FY21F (5x in phase-1 of the restructuring plan), significant deterioration operationally, permanent damage to its liability profile, 75 percent of shares held locked in for three years and weak capital levels (CET-1 of 7.6% post planned infusion) as well as impending stress that was yet be recognised.
Hence, the brokerage suspended its coverage of the stock.
The country's fourth largest private sector lender on March 14 reported a loss of Rs 18,564 crore in the quarter ended December 2019 compared with the profit of Rs 1,001.8 crore a year ago, dented by significant rise in bad loans and severe fall in deposit base.
It reported an operational loss of Rs 6.42 crore in Q3FY20, impacted by slippages of Rs 24,600 crore – NIMs compressed by 190bp QoQ to 1.4 percent. The bank's liability profile deteriorated sharply, with deposit book shrinking by Rs 44,000 crore QoQ and loan book by 17 percent QoQ (24 percent YoY).
"Deposit run-down will continue especially post- moratorium and with smaller balance size and lower opex levers, we expect operating profitability to be dramatically impacted," said the brokerage.
Asset quality also deteriorated sharply, with gross non-performing assets (NPAs) inching to 18.9 percent led by Rs 24,600 crore of slippages.
The bank did further guide towards an additional 5 percent slippages (Rs 9,000 crore) in FY21F (total GNPA of Rs 50,000 crore) against a total stress book of around Rs 75,000 crore.
"While the bank did ramp up its provision cover to 73 percent but with balance-sheet size shrinking, the left-over book will remain highly toxic, making any recovery in profitability very difficult, in our view," Nomura said.
With a loss of over Rs 18,000 crore, CET-1 was reduced to 0.6 percent and despite Rs 10,000 crore of capital infusion by banks as well as Rs 8,400 crore of AT-1 write down, CET-1 of 7.6 percent was weak and would require continued capital support, the brokerage said.
"We have seen no private interest so far in the bank and given the deterioration in the business, banks/RBI will have to continue to provide both liquidity and capital to the bank," it said.
Yes Bank expects pressures from sour loans, which led it to declare the highest loss for the December quarter, to continue even in FY21, but CEO-designate Prashant Kumar is confident of its survival after a Rs 10,000-crore capital infusion.
State Bank of India is ready to invest Rs 7,250 crore in Yes Bank, while ICICI bank, HDFC, Kotak Mahindra Bank, Bandhan Bank, Axis Bank and Federal Bank will put in Rs 3,700 crore in the cash-starved lender.
The moratorium period, which started on March 6, ends mid week and the new board will be formed within seven days.
Prabhudas Lilladher also suspended its rating on the stock after the third quarter loss. "Deposit outflow behaviour post moratorium lifting will be important event and with statutory ratios below prescribed levels it is difficult to project any direction. Rating suspended," it said.
The brokerage also said though the bank had got fresh capital from other banks of Rs 10,000 crore under the reconstruction scheme but it wasn’t enough.
"The bank will need further capital infusions as some part of loans are still stressed and shrinkage in balance sheet will not keep operating profit at pace, but good part is most of the pain has been recognized with strong 72 percent PCR and hence we may see other investors support as well," it added.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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