YES Bank sparks selloff in lenders as wary investors exit

By Nupur Acharya

YES Bank Ltd. slumped to the lowest level in a decade, leading a selloff in Indian lenders. IDFC Securities Ltd. says the blood-letting in the stock isn’t done yet.

The brokerage slashed the bank’s target price to 35 rupees, implying a 19% drop from the current level of 43 rupees. The stock plunged 15% on Monday, set for the lowest price since February 2010, dragging all 10 members of the S&P BSE Bankex Index into the red.


“We see more bad loans, higher haircuts due to slower resolutions and uncertainty around equity raising given the sharp correction in stock price,” Mahrukh Adajania, Mumbai-based analyst at IDFC Securities, wrote in a note on the weekend.

Yes Bank is one of the lenders worst affected by the nation’s shadow banking crisis, which has soured the sentiment for the entire financial sector. Small- and mid-sized lenders are being hit the hardest amid a steady drip of reports of financial irregularities and surging bad loans.

Earlier this month, the central bank curbed deposit withdrawals from the unlisted Punjab & Maharashtra Co-operative Bank Ltd. on alleged irregularities and failure of internal controls. Last week, the Reserve Bank of India imposed lending limits on Lakshmi Vilas Bank Ltd. citing a high level of bad loans and insufficient capital to absorb risk.

Yes Bank has seen its shares crash 77% this year on concerns about the lender’s thinning capital buffers and its sizable exposure to the cash-strapped shadow lenders. The recent approval by the RBI to raise capital hasn’t put the brakes on the swift descent.

“Given the huge capital shortage, we believe the merger with a large state-owned bank is the only way out,” Adajania said in the note.