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Yes Bank Already Lost Half Its Market Value

Author : Odisha Today Bureau | Posted on: 2019-01-14

Yes Bank, which is India’s one of the largest private sector banks and the third largest lender, has lost more than half its market value since 20 August - from 910 billion to 438 billion-, as its share price has seen a freefall. Investors are in the fear that the RBI would not approve the extension of the CEO Rana Kapoor’s tenure, which was set to expire on 31 August.

Last week, RBI refused to extend Kapoor’s term, capping it at 31 January 2019, and that precipitated a dramatic crash in the bank’s share price. On 20 September the bank’s stock fell by a whopping 29% as the uncertainty over its future leadership became compounded. That makes up to a loss of over $3 billion in market value on one day alone.

Rana Kapoor founded the bank in 2004 and since then the bank has seen a dramatic rise in its fortune under his leadership. However, in his effort to expand the bank’s operations and loan book at a rapid pace, he overlooked a number of issues that now turns out to be the centre of scrutiny. Following a risk review by the RBI in October 2017 it came to light that Yes Bank had underreported whopping63.6 billion worth of non-performing assets.

There were also allegations that the bank had some direct dealings with a trust run by Kapoor’s family apart from its attempt to window-dress some of its large corporations to look financially stronger than it actually was. Hence RBI is not in a forgiving mood because of the recent development in the banking sector in India which grapples with a bad loan crisis.

Since then, the future of Mr. Kapoor has been under intense speculation. Similarly, earlier this year, the RBI has already refused to clear a three-year extension of the tenure of Shikha Sharma, the CEO of Axis Bank.

To reassure investors and stabilise its share price, Yes Bank could have announced a successor for Kapoor this week. However, on 25 September, it wrote to the RBI again asking the regulator to reconsider its decision to trim Kapoor’s tenure, asking for an extension till September 2019. The RBI is expected to decline the bank’s request.

Hence the bank has now been forced to set up a search committee to find a replacement for Kapoor. But it would be really interesting to watch what steps the bank is going to take to draw up an effective turnaround plan in order to limit any further damage to their market cap.

 

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