After its share price plummeted 13% in the last few days Yes Bank sent a mailer to all its “valued” shareholders” citing broker research reports to hold on to their dear stock even as it prepares to declare quarterly results. Is SEBI concerned at all?
In a strange move, Yes Bank encouraged its shareholders to hold on to their stocks, citing stock brokers research recommendations. This is peculiar because it is not a usual practice to write to shareholders about stock valuation, especially before a quarterly result announcement due on July 24. Since 15 July, the company’s share price has taken a beating, plummeting over 13% from Rs500 to Rs433 at the time of writing this piece after Reserve Bank of India (RBI) tightened liquidity measures (which is likely to affect banks in the upcoming quarter, and beyond). The incumbent management is also involved in a nasty controversy involving the two promoter families, which has now become public. Yes Bank probably fears that its efforts to raise capital could be hampered, if its share price was to decline further. If that is so, it has surely chosen a funny way to deal with it.
The bank’s “Financial & Investor Strategy” team, whatever this means, sent a mailer to all its “valued” shareholders stating, “Despite the recent correction in the stock, leading brokerage houses have maintained their positive outlook on the stock with a strong expected growth outlook in earnings and profits.” It pointed out that “leading brokerage firms” like of Morgan Stanley and Goldman Sachs attached “BUY” recommendations.
How much value is there in these recommendations? It is pertinent to note that Morgan Stanley and Goldman Sachs were lead managers to Yes Bank’s previous qualified institutional placement (QIP) issue, in 2010. Apart from fixating on Goldman Sachs and Morgan Stanley analyses (and that too in detail), the mailer goes on to mention the likes of JM Financial Institutional Securities, Merrill Lynch, HSBC, Macquarie, Deutsche, all of which gave BUY ratings.
Furthermore, Yes Bank’s mailer mentioned specifics that are usually mentioned in an earnings release, clearly to boost its share price and give its “valued” shareholders a glimmer of hope. It said, “Diversity of deposits has improved significantly over the past 3 years on the back of retail deposit and CASA (current account-savings account) traction, CASA as at March 31, 2013 at 18.9%. More than 86% of deposits are from depositors contributing less than 0.20% of total deposit base individually. Yes Bank has limited concentration in deposit base. Yes Bank runs a positive interest rate gap in the short term (less than 6 months) bucket, hence with the current tightness in liquidity, increase in rates may have beneficial impact on margins.”
Yes Bank has diluted its equity base by 32.8%, since 2006. It has raised equity capital three times—Rs120 crore in December 2006 and Rs330 crore in December 2007. In January 2010, the bank raised Rs1,034 crore through a placement of shares to QIBs. In 2006, the equity base was Rs270 crore. Now it is Rs358.62 crore.
And now it has plans to hike foreign equity participation, by up to 60%, vis-a-vis global depository receipts (GDRs) or another QIP issue. In fact, in Yes Bank’s recent annual general meeting on 8 June 2013, the resolution to raise as much as $500 million was unanimously passed. In the AGM press release, Rana Kapoor, managing director and chief executive officer (CEO), talked of “deepening shareholder register” and widening “investor classes” but made no mention of minority shareholders and mentioned only qualified institutional investors and domestic institutional investors.
Furthermore, the family feud has been the talk of Dalal Street of late, which has embarrassed company’s officials. The two promoter families are feuding about board seats.
Madhu Kapur, widow of late Ashok Kapur (brother-in-law of Rana Kapoor) has sought to nominate her daughter Shagun Kapur Gogia, legal heir to Ashok Kapur’s 12% stake in the bank, to the board of Yes Bank. However, the Board of Directors of Yes Bank rejected her offer. Ms Kapur then petitioned the Bombay High Court, seeking the court intervention in the case. Moreover, she also has sought the court intervention to quash appointment of three directors of the bank namely Sanjay Palve, Rajat Monga and Pralay Mondal. She also alleges that the annual general meeting held on June 8 was not conducted in a proper manner and has asked the Court to direct Yes Bank to provide minutes of meeting as well as video recordings. The Court will give the final hearing on July 29.
There are allegations, according to the Economic Times, that Rana Kapoor’s loan got waived off by Rabobank, an erstwhile strategic shareholder of Yes Bank. Ms Madhu Kapur, the widow of late co-promoter Ashok Kapur (Rana Kapur’s brother-in-law) alleged that Rabobank forced Ashok Kapur to sell off his shares to repay the loan given to him. Recently, it was reported that Rana Kapoor’s family bought a house for an extravagant Rs128 crore next to Mukesh Ambani’s Antilla, on the ritzy Altamount Road in Mumbai.
Yes Bank recently was levied Rs2 crore penalty by RBI for failing to adhere to KYC and anti-money laundering norms.
Yes Bank is among the banks that do not disclose charges in its website such as number of free transactions at other bank ATMs in India and replacement of damaged debit cards, which is in violation of RBI circular. The story can be accessed here.
Those looking for safety and smooth returns from bond schemes like their fixed deposits, would be disappointed again
On 16th July, the Reserve Bank of India (RBI) tightened domestic liquidity to stem the rupee depreciation. As a result, banks started redeeming their surplus investments from liquid and gilt schemes of mutual funds. Mutual funds were net sellers of Rs12,546 crore, whereas FIIs were net sellers of Rs263 crore in the debt market. On account of the huge redemptions, bond yields shot up by 54 basis points from 7.56% to 8.01%, the biggest single-day gain since January 2009. The average net asset value (NAV) of bond schemes (having an asset above Rs100 crore) declined by 2.07% in a single day. Over the past two months, bond yields have gone up to 8.1% as on 16 July 2013 from a low of 7.09% as on 24 May 2013. During this period bond scheme have delivered a return of -3.09%.
While regular bond schemes declined by 2.94%, the much-touted dynamic bond schemes declined by 3.46%. This would have come as a rude shock to bond fund investors. They look for safety and smooth returns when they invest in bond schemes; an alternative to bank fixed deposits.
Over a one-year period ended 16th July, bond schemes delivered an average return of just 5.43% post tax – no better than bank FD. The top 10 bond schemes delivered an average post-tax return of 7.10% while the bottom 10 bond schemes delivered an average post-tax return of 3.74%. Dynamic bond schemes fared no better delivering an average return of 5.47% over the year. “Dynamic” is a marketing gimmick. Bond fund managers are incapable of timing the market since Central Bank can change the rules of the game overnight.
Considering that since April 2012, the RBI has cut interest rates by 125 basis points to 7.25% from 8.50%, this is not the kind of returns bond fund investors would be expecting. However, the massive sell off by foreign investors over the past month has led to a loss for bond fund holders. We are sure no Indian bond fund investors, bond fund managers or mutual fund companies had reckoned with this new factor – volatility in returns caused by FIIs entering and exiting the bond market. From the beginning of June to 15th July, FIIs have registered a net outflow of over Rs40,000 crore due to a changed outlook of interest rates in the US and the strength of dollar.
The Reserve Bank guidelines on counterfeit notes to banks indicates that banks will have to streamline their system in a manner that they have to bear the risk of receiving counterfeits rather than the common man who suffers a loss by unknowingly comes into possession of such notes
The Reserve Bank of India (RBI) has directed banks to collect counterfeit notes from depositors, mark them appropriately and also give credit to the customer for value of notes submitted.
“Detection of counterfeit notes, at banks, should be at the back office or currency chest only,” the RBI said in a circular issued on 27 June 2013 . “Banknotes when tendered over the counters may be checked for arithmetical accuracy and other deficiencies like whether there are mutilated notes, and appropriate credit passed on to the depositor or account or value in exchange given,” it added.
The RBI has further said that banks, which detect and deposit such counterfeit currency, would be compensated to a small extent. In the circular the central bank said, “It has been decided to compensate the banks 25% of the loss incurred in respect of counterfeit notes of Rs100 and above detected by them and reported to RBI and Police authorities.” This means that banks will not be absolved of the duty to check for counterfeits, but would not be the losers when a small number of fakes get past them.
The problem of counterfeit notes has been escalating over the years. Recently, fake Indian currency, worth Rs37 lakh from a Chinese source was detected at a Delhi restaurant. In another recent case, the National Investigation Agency (NIA) has revealed clear link between Pakistan and Jammu and Kashmir-based terror outfits pooling their resources to circulate fake Indian currency and using it to fund jihadi activities in India, says a report from India Today.
According to RBI, reporting and detection of counterfeit notes has not improved on its expected lines. RBI said although 90% of the currency chests are with the public sector banks, they account for reporting of a mere 10% of counterfeit notes, while private sector banks with less than 10% of currency chests are reporting 90% of such cases.
The central bank also warned that it would penalize banks that do not report counterfeit notes in its branch or currency chest. Banks would be penalized if found holding counterfeit notes in its branch or currency chest without reporting it to RBI or Police, during an inspection by the RBI. “It will be construed as willful involvement of the bank concerned in circulating counterfeit notes, and appropriate penalty strict regulatory measures against the bank including stringent disciplinary action will be imposed by RBI,” the circular said.
Here are the RBI’s guidelines for detection of counterfeit notes to banks…
1) The process of detection of counterfeit notes should be carried out at back office or currency chest only. Banks can check arithmetical accuracy and other deficiencies like mutilated notes at counters and passed on appropriate credit to the depositor/account or value in exchange given.
2) Thereafter the notes should be passed over to the back office or currency chest, as the case may be, for detailed verification and authentication through machines.
3) The notes categorized as suspect during machine processing should be subjected to manual verification for checking their authenticity.
4) The notes identified as counterfeit should be kept separately with proper impounding stamp in the prescribed format. Details of each impounded note should be recorded under authentication in a separate register.
5) There will not be any requirement to issue acknowledgement to the tenderer.
6) In the cases of detection of up to four pieces of counterfeit notes, in a single transaction, consolidated monthly statement should be sent to the Nodal Police Station through the Nodal Officer of the bank. In case of detection of five or more pieces, FIR in the prescribed format should be lodged.
7) Banks should monitor the patterns or trends of such detection and suspicious trends or patterns should be brought to the notice of RBI or Police authorities immediately.
8) The reporting procedure to the Regional Offices of RBI in the prescribed format will remain unchanged.
It also observed that despite the measures and after rationalizing the procedure of filing first information reports (FIRs), the detection and subsequent reporting of counterfeit notes by banks continue to be inadequate. This has serious repercussions in that the Reserve Bank is not in a position to assess the number of counterfeit notes in circulation and its ramifications for the economy.
In past we saw many cases of counterfeiting of currencies, but in India it’s not as big which affects the economy as a whole. Involvement of Pakistan ISI and Counterfeit Currency boosted from Bangladesh borders may spread many Counterfeit Currency across the country but RBI also take initiatives to protect it, RBI launched website to explain detection of fake currency. As Prevention is always better than cure to prevent yourself be aware and alert! Still if you stuck with few counterfeit notes, make sure that you deposit it in your bank!
Reported by Vishrut Patel