State Bank of India Chairman Rajnish Kumar says Yes Bank too big to fail and he is certain of “some solutions emerging” for the troubled private-lender.
Yes Bank share price ended 6.5 percent higher at Rs 40.95 on BSE on January 23 - after cooling off slightly from an 8 percent intraday gain - buoyed by reports that State Bank of India (SBI) Chairman Rajnish Kumar had indicated that the private lender will not be allowed to fail.
With this, the stock extended gains into the second consecutive session.
Kumar expressed certainty in “some solutions emerging” for troubled private-lender Yes Bank, Bloomberg reported.
The SBI chairman said, as a major player, it would “not be good” for India’s economy if Yes Bank fails. “A bank that size if it is allowed to fail, there’s a problem. I am sure that some solutions will emerge,” Bloomberg quoted him as saying.
Kumar’s comments brought relief for Yes Bank stock, which is 87 percent down from its 52-week high of Rs 285.90 hit on April 3, 2019.
The comments by the head of India’s largest lender may give a momentum fillip to the stock but a lot will depend on how the private bank raises funds in the coming days. All eyes will be on the bank’s extraordinary general meeting (EGM) called on February 7.
The market is buzzing with reports that the government, which controls State Bank of India, may ask the lender to help in bailing out Yes Bank.
"The SBI chairman's comment has reinforced the confidence that there are enough buyers for Yes Bank. We expect some fundraising will be done soon and as the liquidity starts to get easier, enough people will come forward to buy the franchise of Yes Bank," said IIFL Securities director Sanjiv Bhasin.
Is there a possibility that SBI will save the bank?
Market experts and industry watchers are divided on it, with some saying it speculative whether SBI or Kotak Mahindra Bank will buy stakes in Yes Bank.
Target Investing founder Sameer Kalra has a different view.
"Anything is possible till the time there is a particular announcement from Yes Bank. There is EGM on February 7, so there might be an announcement before that," Kalra said.
He has a 'hold' call on the stock. "We will review the call after the bank's fundraising and results," Kalra said.
The market will be closely watching the lender's December quarter numbers. Asset quality and commentary on capital raising will be the focus, though the bank has not announced the earnings release date.
Most brokerages are expecting unimpressive numbers for the bank.
"Net interest margin (NIM) will moderate year-on-year (YoY) on higher slippages, while the fee income will remain under pressure in the absence of fall in advance. GNPA will increase on higher slippages from BB and below book and incorporation of divergence report," said Phillip Capital in a report.
Edelweiss Securities, on the other hand, expects the bank's asset quality and credit cost to be higher than the earlier guided range. The brokerage expects upfronting.
"Business consolidation will continue (QoQ dip in loan book). Fee income trend will be volatile and higher slippages will weigh on margins," Edelweiss said.
Brokerage firm Narnolia Financial Advisors expects the same.
"Yes Bank is expected to remain under pressure on the profitability front for Q3 on account of degrowth in the loan book and high BB and below book which is 10.1 percent of the advance," said Narnolia.
Narnolia's estimates show advances are expected to degrow by 8 percent YoY, while NII is expected to be down by 19 percent YoY.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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