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From diamonds to dust: Will the YES Bank crisis spill over to other lenders

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NEW DELHI: Cash and customers both are king and private lender YES Bank put them in trouble after the Reserve Bank of India seized control of the lender and imposed withdrawal limit.

The spillover effect can be measured with a fall of 39 other banking counters on March 6. There is a buzz on Dalal Street that crises like YES Bank and PMC Bank may create depositors averse towards weaker banks.

The country has already reeling from a liquidity crunch since the near-collapse of IL-FS, one of the nation’s biggest shadow banks.

Any slowdown in deposits will further dampen the economy going forward. YES Bank’s exposure to the NBFC sector is particularly large and it has been struggling for some time to raise fresh capital to free itself of a mountain of bad loans in order to quell worries about its viability. Founder Rana Kapoor once compared YES Bank shares with diamonds, which are now available at the price of dust. Reacting to the flurry of news, YES Bank witnessed its biggest intraday fall on Friday.

The scrip tanked as much as 55 per cent. Other lenders such as Corporation Bank, United Bank of India, Allahabad Bank and RBL Bank dipped 10-20 per cent, while the BSE Bankex also lost nearly 4 per cent during the day. The central bank has also imposed a moratorium on the private lender till April 3.

Withdrawals from the bank have been capped at Rs 50,000 per depositor. Commenting on the impact of the YES Bank situation on deposits and investment, AK Prabhakar, Head of Research, IDBI Capital Market said: “There is no need to worry for depositors.

RBI has already acted on the development.

I don’t think it is going to have a spillover effect.

However, we see some temporary fall in banking players, which is already visible in Friday’s trade.” Country’s biggest banks, including State Bank of India, HDFC Bank and ICICI Bank dropped up to 6 per cent during the day. Saurabh Mukherjea, Founder and CIO of Marcellus Investment Managers said, “I suspect four banks and three NBFCs will finance the entire country.

We will be buying as many of those shares as we can today, as we have been doing for the last year or so.” YES Bank had posted a net loss of Rs 600 crore for the quarter ended September 30, 2019, owing to a one-time deferred-tax asset (DTA) adjustment of Rs 709 crore.

The gross NPAs increased to Rs 17,134 crore during the quarter from Rs 3,866 crore in the year-ago period.

Net NPAs also jumped to Rs 9,757 crore from Rs 2,019 crore in the same period.

The lender is yet to announce its financial results for the quarter ended December 31. Other public and private sector banks together posted gross NPA of Rs 8.98 lakh crore in Q3FY20 over Rs 9.41 lakh crore in Q3FY19. Percentage of gross NPAs of IDBI Bank stood highest at 28.70 per cent in the October-December period last year.

It was followed by Lakshmi Vilas Bank (23.30 per cent), Central Bank of India (20 per cent), UCO Bank (19.50 per cent), Allahabad Bank (17.30 per cent), Indian Overseas Bank (16.80 per cent), Bank of Maharashtra (16.80 per cent), Bank of India (16.30 per cent), Punjab National Bank (16.30 per cent) and United Bank of India (15.50 per cent). The government in February said the NPAs of public sector banks alone stood at Rs 7.27 lakh crore in the preceding quarter ended September 30, 2019. Market experts are bullish on select banking majors.

“Valuation will readjust after the ongoing correction.

We will prefer to buy established names such as ICICI Bank and Axis Bank,” said Prabhakar.

Asset quality of both the lenders improved during the latest quarter ended December 31. Percentage of gross NPAs for ICICI Bank improved to 6.40 per cent during the quarter against 8.50 per cent in the corresponding quarter last year.

Gross NPAs of Axis Bank eased to 5 per cent against 5.80 per cent in the same quarter last year. Sameer Kalra, Founder, Target investing is also bullish on Axis Bank.

However, he believes that the ongoing tension in YES Bank is negative for the banking sector for the short-term. According to Santosh Meena, Senior Analyst at Tradingbells, YES Bank depositors should not panic as their money is safe.

“But as a shareholder, there is no value left, and it is better to exit whatever price they get where no one should try to buy this stock as a fresh investment,” he added. How to separate wheat from chaff amid the ongoing uncertain phase for the financial market? Mukherjea in an interaction with ETNow said that one who works in the equity market should look at the certificate of deposit and commercial paper market more carefully because those markets give very clear signals as to which lenders they are backing and which ones they are pulling away from.




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