🎢 On a Roller Coaster: Yes Bank Shares
Yes Bank shares are taking investors on a crazy ride. Here's why they are up one day and down the other.
Â
The stock market gives you thrills that no amusement park can match.Â
And the new roller coaster ride that traders are on right now: Yes Bank.Â
Yes Bank's share price rose over 27% in 4 days before falling to 5% on December 14.
So, what's going on?Â
📈 The Rise of Yes Bank
Yes Bank's rally is nothing new.Â
Its share price is up 62% this year thanks to:Â
High Profits (Q1 profit rose 50% YoY)Â
High Loans Disbursal (Loans rose 11.6% in Q2)Â
High Deposits (Deposits rose 18.3% in Q1)Â
Low NPAs* (Down to 12.89% from 13.4% in the previous quarter)Â
But the share price had been growing slowly and steadily so far.Â
Here's why it suddenly took on a rabbit's pace:Â
âž¡ Yes Bank is one of the four banks launching the new e-rupee, India's very own CBDC. This has created a lot of hype around the Bank. In fact, some customers are opening accounts with Yes Bank just to try out the new e-rupee!Â
âž¡ Yes Bank is selling Rs. 48,000 crores worth of bad loans to an asset reconstruction company (here's what that means) JC Flowers. This will help the bank recover Rs. 11,183 crores and also bring the bank's NPA ratio to around 10%.
âž¡ Yes Bank is also going to get a lot of money soon. You see, not one but two private equity funds, Carlyle Group and Verventa Group Ltd., are investing a total of Rs. 8,896 crores in Yes Bank for a 9.99% stake.Â
Now, all was well for Yes Bank, no? Then why did it fall flat?Â
Blame it on profit booking. You see, anytime a share is rallying insanely, some people will sell off their holdings to gain short term profits.Â
But there's more than meets the eye. Let's look back at 2020.
📉 Yes Bank's Great Fall
Since 2016, Yes Bank's NPAs had been rising because it had given major loans to fraud companies like DHFL.
And by 2020, the RBI had had enough. So, it took over Yes Bank's board, appointed new directors and asked SBI to bring it back from the edge of death.Â
Now, the task was too big for SBI alone. So, several other private banks came together to pitch in and rescue Yes Bank. They bought shares of the bank to infuse some money in its books.Â
And a major portion of these shares have been locked in for almost 3 years now. You see, RBI didn't want these banks or other investors to suddenly get cold feet and sell Yes Bank's shares.Â
Selling a huge chunk of shares would create problems for RBI and SBI that were trying to revive the bank.Â
Now, the 3-year period is going to end in March 2023. And many of these banks could finally cash out, tanking Yes Bank's stock price.
So, many investors don't want to wait for that day and want to cash out now when share prices are still high.
But these banks may not cash out, na? Why do investors think they will?Â
Well, even after record performance, Yes Bank's profits fell in Q2 FY23.Â
And with a recession likely to hit soon, banks in general could be in for a hard time.Â
However, with new capital infusion and bad loans taken care of, the bank could grow at a much faster pace now.Â
What do you think, which way will Yes Bank go now?Â
Disclaimer: This is not an investment advice.
🤓 Noob’s Corner: Non-Performing Assets: Any loan whose interest amount or principal loan amount has not been paid to the bank for 90 days. Now, some of these NPAs can be recovered and revived, while some become an absolute dead end. Most banks have at least some NPAs, but the lower NPAs, the better for the bank as it loses less money!Â
âš¡In a line: People are confused about what direction Yes Bank is going to take in the future due to mixed signals.
💡Quick question: Are you betting on Yes Bank?
Share this with your friends via WhatsApp or Twitter and help them grow!
See you tomorrow :)
If you are coming here for the very first time: Don’t forget to join us on WhatsApp to get daily updates! 👇