InvestorQ : Why are Yes Bank and IndusInd Bank correcting so sharply in the last few days?
Ria Jain made post

Why are Yes Bank and IndusInd Bank correcting so sharply in the last few days?

Anu Biswas answered.
1 year ago

You must have noted that both IndusInd Bank and Yes Bank have been weak for quite some time ever since there were doubts over their quality of assets. In fact, Yes Bank started correcting after it posted a loss of Rs.1500 crore in the fourth quarter. But the recent trigger for the fall came from a recent UBS research report. Here are the highlights of the UBS report, to which both the stocks have reacted.

· UBS changed its recommendation on IndusInd from Neutral to “Sell”, while it retained the Sell rating for Yes Bank.

· The target price for IndusInd Bank has been revised down from UBS from Rs.1700 to Rs.1400. Similarly, the price target for Yes Bank has been downgraded from Rs.170 to Rs.90.

· One of the main reasons for the downgrade was that for both the banks the ratio of lending to non-investment grade network companies to the main company was very high. It was 3.1 times for Yes Bank and almost 5.2 times for IndusInd Bank.

· UBS also pointed out that the concentration of lending to weak companies was also very high Yes Bank and IndusInd Bank and that was a key reason for the downgrade.

· UBS also expects that the actual credit cost could be 150 bps higher than estimates for IndusInd Bank and nearly 250 bps higher for Yes Bank.

· Lastly, UBS has also pointed out in the report that retail deposits of these two banks as percentage of external liabilities was less than 25% and that is normally a basket case for solvency risk in banks.

The two stocks have been correcting largely because of the above serious flaws pointed out by UBS in the operations of Yes Bank and IndusInd Bank.