Yes Bank shares zoom 30% after RBI clears lender of divergence; should you buy or sell stock?

Shares of India’s major private sector lender Yes Bank surged in trade on Thursday morning after the RBI cleared the bank of divergence. Yes Bank share price gained by nearly 30% to hit the day’s high at Rs 220.25 on NSE this morning. Yes Bank said yesterday that the RBI has not found any divergence in the asset classification and provisioning done during 2017-18. “The report observes NIL divergences in the bank’s asset classification and provisioning from the RBI norms,” the Mumbai-based lender said in a statement to the stock exchanges, citing the central bank’s risk assessment.

Taking stock of the development, global research firm firm Nomura said that the Risk Assessment Report from RBI is positive and could lead to a near term re-rating. Nomura has a “neutral” rating for the bank with the target stock price at Rs 245 per share. Research and brokerage firm Motilal Oswal said RBI’s report has removed challenges that the new management might otherwise have had to align the bank’s asset quality standards to RBI’s requirements.

According to Macquarie, the NIL divergence reported by the bank is a big positive. The firm has a target stock price of Rs 270. A significant overhang has dissapeared from the bank. Macquarie has a buy rating on the stock with a share price target of Rs 270. The valuations are cheap at the current levels, said Macquarie, with an advise to buy the scrip.

“With two of the key overhangs addressed (management and divergence), we expect the bank to now look at the capital raise issue over the next few months, which will help drive a gradual improvement in its operating performance, Motilal Oswal noted, maintaining a “buy” rating with the target price of Rs 270 per share.

Yes Bank