Stampeding bears send yes Bank diving

Stampeding bears send yes Bank diving: Conspiracy or foul play?

The country’s 6th largest private lender is currently staring at a mammoth uphill battle to reinstate investor confidence and to simultaneously fend of the media wrath it has incurred.

Yes Bank has filed a clarification on both exchanges hitting out vehemently at Business Standards for conflict of interest and has described the news coverage as “predatory, vindictive, and ruthless.”

The alleged conflict of interest pertains to the ownership of Business Standards (BS) by the Kotak family, which also owns Kotak Mahindra Bank, which is an arch rival of Yes Bank. The market has not spared Yes Bank and has punished the stock driving it to a fresh 52 week low through the rout.

Uncovering Yes Bank and setting rumors asides, this is what our research has dug out on the private lender:

• Rana Kapoor’s term as CEO and MD stated to end on the 31st of January next year has already sent ripples across the market. The successor in fray adds potential uncertainty to the banks future and long term vision.

• YES Bank’s independent director Mr R Chandrashekhar stepped down from its board on November 20th, making him the third high profile resignation in a week since the bank’s nomination & remuneration committee (NRC) started reviewing their board members performance.

• Yes Bank’s non-executive chairman, Ashok Chawla, and the bank’s head of audit committee Vasant Gujarathi stepped down a week before Chandrashekhar did, raising concerns of management integrity and possible lapse of corporate governance.

• Co-founder infighting between Rana Kapoor party and the late Ashok Kapur’s widowed wife Madhu Kapur and family raises an uncertain long-term unified vision and governance concerns. The co-founding promotors have been at spat for many years raising internal politics and personal vendetta.

• Yes Bank and its well-known peer Kotak Mahindra Bank started operations around the same time. Yes, Bank currently has a market capitalization of Rs 37,835 crore while Kotak Mahindra Bank has a market capitalization of Rs 2.43 lakh crore. Kotak has evolved from an investment bank to a full-fledged lender with interests spread across asset reconstruction, life insurance, and private equity. Yes, the bank’s infighting and challenging corporate governance has curtailed its growth, unlike its successful peer.

• And finally, Rana Kapoor has been covertly using his shareholding in Yes Bank as collateral to raise funds from various mutual funds and lenders to suspiciously invest in private deals. His use of the “Yes” brand in one of his investment vehicles is a pure case of fraud as Mr. Kapoor remains a minority shareholder and is liable to take consent for the same.

• It also appears that Rana Kapoor has raised as much as Rs 1,160 crore against his Yes Bank shareholding through a holding company structure Morgan Credits, which owns about 3% of Yes Bank. The lending was done by a group of hybrid and debt schemes of Reliance Mutual Fund by subscribing to Morgan Credits non-convertible debentures in two tranches of Rs 950 crore and Rs 210 crore.

• These suspiciously covert moves raise concerns about the integrity of Yes Bank Promotors. This move would normally not have been orchestrated without unethical payments at different levels which again talks volumes of the ethical code at Yes Bank.

We observe that Yes Bank has many structural hurdles before we can truly be confident of their transparency and concern for stakeholder value. Yes Bank will undergo a metamorphosis and management reshuffle in the short term causing volatility till the dust finally settles down. Until then, Yes Bank would be better off if avoided.