Rana Kapoor’s Exit Poses A Big Challenge For Yes Bank, Say Brokerages 

The Reserve Bank of India’s decision to give Rana Kapoor only four additional months as chief executive officer and managing director of Yes Bank Ltd. throws up a number of challenges for the private lender, said brokerages.

Shares of Mumbai-based private lender plunged 29 percent at close, its biggest intraday loss since listing, to Rs 226.50 apiece on the BSE Ltd. Kapoor, who has been the CEO since he co-founded the bank in 2002, has to step down by Jan. 31, 2019, the lender told exchanges yesterday. Its board will meet on Sept. 25 to decide on the future course of action.

Rajat Monga, the senior group president, is the most likely candidate to replace Kapoor, according to most brokerages, but the regulator has to approve his appointment. In case the RBI insists on an external candidate, time to find a suitable person “could prove short”, Citi Research said.

Kapoor’s exit could slow down growth and delay fundraising plans of the bank, brokerages said. It would also result in a material downside for the stock, according to some of the analysts.

Here’s what brokerages made of the development:

IDFC Securities

• Downgrades to ‘Underperformer’ from ‘Neutral’; Cuts target price to Rs 230 from Rs 350; Indicating potential downside of 28 percent from Wednesday’s closing price.
• Cut in Rana’s tenor is a very big negative for YES Bank.
• Rana’s absence will slow down loan and fee growth.
• Could also impact bank’s ability to raise high net worth deposits.
• This risk has not been priced in; Expect significant correction in stock price.

Macquarie

• Rejection is a major negative development.
• Expect a sharp gap-down opening on Friday.
• Absence of any communication from YES or RBI will be an overhang on stock.

Citi Research

• Downgrades to ‘Sell’ from ‘Buy’; Cuts target price to Rs 270 from Rs 440; Indicating a potential downside of 15 percent from Wednesday’s closing price.
• Believe there is a premium attached to the stock due to Rana Kapoor.
• Likely that bank will have to defer its capital raising plans.
• Delay in raising capital to impact growth.
• Time period of over four months could prove short to find a suitable external candidate.

Edelweiss

• Maintains ‘Buy’; cuts target price to Rs 375 from Rs 453; Indicating a potential upside of 18 percent from Wednesday’s closing price.
• Development is negative given Kapoor’s close association and ownership in the bank and concerns around asset quality.
• Creates uncertainty about new leadership and capital-raising plan.
• Believe that bank has a strong foundation which the new leader would build on.
• Given franchise strength, YES will be able to sustain superior return on equity profile.