Should You Say “Yes” To The Yes Bank Shares?

This week once again saw the Yes Bank shares very volatile, with Moody's placing the bank's rating under review. A week does not pass-by, without constant news and speculations about Yes Bank.

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Quarterly numbers eagerly awaited

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The quarterly numbers of the bank are eagerly awaited. Many institutional investors have exited the stock and the bank has now solid holdings from retailers. Most of these investors want to await for the numbers of Yes Bank and some information on the bank's fund raising plan.

It's highly likely that non performing assets of the bank would rise and provisions increase this quarter. For the bank to really survive it needs two things at the moment: a large-scale capital infusion or a takeover from a larger bank.

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Capital raising which has been eagerly awaited by the bank for so long now, is just not happening. The sought of marquee investors that the bank is looking is not falling in place.

The kind of investors who are willing to pump money in the bank are not a marquee set of investors. The bank has already declined one proposal. Yes Bank is looking to raise about Rs 10,000 crores and this too may not be sufficient say analyst. In fact, slippages from the corporate loan book are only set to rise and the Rs 10,000 crores may not be adequate.

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Unless there is some swift resolution on that front, its going to be very difficult for the bank. The next best option would be a takeover of the bank by a larger bank. The options here are very few including the likes of HDFC Bank, SBI and Axis Bank. We have seen strong banks taking over the weaker banks in the past and this is not the first time this would happen.

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Is Yes Bank to blame?

To be honest, when amounts were lent to some of the groups, they were extremely strong then. For example, when amounts may have been lent to the ADAG, they were financially sound, until the complete collapse of debt ridden RCOM, which dragged the group down.

For example, a company like CG Power was an extremely strong company when Yes Bank had lent amounts. The fact is that many businesses in India have suddenly collapsed. This has risked the business prospects of banks like Yes Bank and many others.

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Is it worth investing in the Yes Bank shares?

If one of the two events highlighted above unfold, the stock could give solid returns. It's always difficult to predict an outcome, but, that's the risk for investors.

Yes Bank at the moment would need plenty of capital and that would mean equity dilution, which is not good from an investor point of view. If it's taken over buy another bank and the share swap ratio is favourable it could benefit investors.

It's important to remember that Yes Bank is not exactly a small bank and in fact it is the fourth largest private sector bank in India. One of the hopes for the bank is that it recovers a significant portion of its non performing assets, which at the moment looks bleak.

The one good thing is that this bank has a strong brand equity and a very good franchisee. Only time will tell how things could unfold at the bank.

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