India's Yes Bank plunges 35% as central bank takes control

MUMBAI (Reuters) – Shares in India’s Yes Bank (YESB.NS) dropped nearly 35% on Friday to their lowest in more than a decade, after the central bank took control and set a limit on withdrawals because of a serious deterioration in its financial position.

The Reserve Bank of India (RBI) took over from the board of the country’s fifth-largest private lender for 30 days, saying it would work on a revival plan.

Moody’s said the moratorium was credit negative as it affected timely repayment of depositors and creditors and added that the lack of coordinated action highlighted continued uncertainty over bank resolutions in India.

“Effectively, Yes Bank should have no equity value left,” said Sandip Sabharwal, a Mumbai-based fund manager. “Ideally, trading should be suspended till formal restructuring is announced.”

Late on Thursday, State Bank of India (SBI.NS), the largest lender, said its board had given an in-principle nod to explore an investment in Yes Bank.

Shares of SBI tumbled 12% on Friday in their biggest intraday drop since October 2012, dragging down the Nifty Bank Index by 5.7%.

The Yes Bank fallout, amid world markets reeling from uncertainty over a virus outbreak, hit Indian markets, taking the NSE Nifty 50 .NSEI down as much as 3.9%, to its lowest since last September.

“(RBI’s move) was inevitable, and was in the offing for some time,” said Deepak Jasani, head of retail research at HDFC Securities Ltd.

“The collateral damage it will have on the equity markets and debt investors is something that we have to be worried about in the near term.”

Yes Bank has struggled to raise capital it needs to stay above regulatory requirements as it battles high levels of bad loans.

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It has been trying to raise $2 billion in fresh capital since late last year, and in February delayed its December-quarter results.

“We believe forced bailout investors will likely want the bank to be acquired at near zero value to account for risks associated with the stress book and likely loss of deposits,” JPMorgan analyst Saurabh Kumar said in a note.

The bank cut its price target to 1 rupee ($0.0135) from 55 rupees a share.

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