Yes Bank slump, lowest in a decade, sparks selloff

Yes Bank is among lenders worst affected by the shadow banking crisis, which has seen small- and mid-sized lenders being hit the hardest.

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Mumbai: 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 Rs 35, implying a 15% drop from Monday’s close of Rs 41.4. The stock plunged 15% to the lowest price since February 2010, dragging all but two of the 10 members of the S&P BSE Bankex Index into the red. The bank’s 2023 dollar notes fell by the most in more than two weeks.

“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 approval by the RBI to raise capital, received Friday, failed to put the brakes on the swift descent.

The bank’s exposure to a “real estate conglomerate, which is in the news today, is totally secured and over the last six months there has been a reduction of about 30% in this exposure,” Managing Director Ravneet Gill said in a statement.

Still, a merger with a “large state-owned bank is the only way out” for Yes Bank, given the lender’s capital shortage, IDFC Securities’ Adajania said in the note.-Bloomberg