Yes Bank rallied 26 percent on Thursday after the Reserve Bank of India (RBI) did not find any divergence in the asset classification and provisioning done by the lender during 2017-18.
The Reserve Bank of India (RBI) assesses compliance by banks with extant prudential norms on income recognition, asset classification and provisioning (IRACP) as part of its supervisory processes.
“As part of this process, Yes Bank has received the risk assessment Report for 2017-2018. The report observes NIL divergences in the bank’s asset classification and provisioning from the RBI norms,” the bank said.
The RBI conducted its first asset quality review (AQR) of banks, started in 2015, in order to find corporate loan accounts with severe financial weakness, but was still classified as standard accounts on the books of the lenders.
Most experts feel that the key overhang for the stock is addressed and the worst appears to be behind which could act as a key trigger for a re-rating.
“Yes Bank (YES) appears to have made a compelling statement to the market, to the investors and in particular to all its skeptics about its compliance practices in reporting bad loans. Importantly, this development comes after months of speculation on the magnitude of divergence that the bank was expected to report particularly after its MD & CEO was forced to step down by the RBI,” Motilal Oswal said in a report.
“Clarity in this regard will thus help the bank to clear the air on one of the key overhangs and start a fresh journey under the new MD & CEO, who has to join office before 1st Mar’19,” it said. Motilal Oswal has a buy rating on the stock with a target price of Rs 270.