Yes Bank – Is it Value or a Value Trap?

I have been getting many questions about Yes Bank in my inbox as well as in the DIY Members forum

… Seems that the future of Yes Bank would be bright after backing from SBI/RBI. What is your view regarding YB? Where you see it in the next 3-5 years …

So let me share my view of Yes Bank.

The Backing of RBI

In simple terms, every Bank has a backing of RBI. So if the Bank is not able to pay you the money you have deposited in the Bank, RBI is liable to pay you the money.

It is to give the confidence to every depositor that there is someone who will pay you back your money. It can take some time, but then your money is safe in any bank, or finally, you will get it from RBI.

RBI is doing everything it should get the depositors’ money back.

As an investor, you are investing in the profits of Yes Bank. So RBI is not liable to pay you the money.

So as a depositor, one can take some calmness from the situation for the money in the Bank; the investor shouldn’t.

The Backing of SBI

I am not sure how much every one of us has been following the news of Yes Bank, but the point where SBI and LIC had to come to rescue Yes Bank speaks for itself.

There were rumors about so many investors that will be investing in the Yes Bank, including Rakesh Jhunjhunwala. The names kept on coming for the past few months, but none of them invested. Finally, it came to a point where RBI had to get SBI into the matter and rescue it.

So, the point of SBI is in the back also meant no one else was interested in the Bank.

The SBI Itself

We have SBI and LIC trying to stabilize the sinking ship, and I am sure they will manage to give the money back to the depositors sooner rather than later.

The question is, can SBI get the glory off the Bank back?

I don’t think so.

As per screener, SBI itself has the following numbers for the past decade:

Only a meager ~3% profit growth. On top of it, the Bank has to bail out (Weaker Bank were merged with it in the past and now Yes Bank).

Moreover, in Mar 2018, the Bank reported a consolidated loss for the fiscal.

So SBI backing the Bank is not something I am excited about.

If another private bank had acquired Yes Bank, the view would have been different.

As far as I am tracking the news in the banking sector, Uday Kotak was keen on an acquisition of a bank to bring down its stake in the Kotak Mahindra bank. However, they didn’t consider Yes Bank speaks for itself.

The Shareholding Pattern: Retail Vs. FII and DII

Finally, as per ValueResearchOnline, the shareholding pattern of Yes Bank in the past five quarters is:

• FII holding has gone down from 36% to 15%
• DII holding has gone down from 21% to 14%

All those who are buying when FII and DII are selling are retail investors.

It means retail investors know something that FII and DII don’t, or they are just averaging down without trying to understanding the reason for fall. More likely, it is the latter one than the former.

Final Thoughts

Never invest in a turn around story. Turn arounds seldom works.

If you want to hold Yes bank, I will share a couple of simple touchstone types of questions that you should ask yourself and get the answer instantly.

• Will You Buy Yes Bank at the current price now?
• Will you deposit 50k in a Yes Bank account now knowing RBI will give it back to you one day?

If the answer to the above questions is NO or even maybe then, why hold the stock now?

I hope the article helps investors make a tough but better decision for their investment.