Why Yes Bank share price is falling is one of the most asked questions from the last 2 years. We’ll analyze YES Bank share and will know all the key factors about it.
First of all, in the stock market, it is very normal.
With every company which is listed in the Indian stock market or any country’s stock market, It happens with all of them.
Sometimes they show very rapid growth and sometimes they fall. But we have to analyze them fundamentally and technically before making any decision about them.
YES Bank, Before you think anything or made any opinion about the yes bank let’s see the chart first of the YES Bank.
So almost 2 years ago yes bank share price is around 400 rupees and then it starts declining.
It goes to 250 rupees, 200 rupees, 100 rupees, and then 50 and now it’s around 70 rupees.
So it’s is not a simple thing.
Why is this happening?
Everyone wants to know how much will Yes bank fall and what is the future of yes bank.
Will this continuously falling or will this get recovery?
And the last what is the reason behind all of this
Before getting into the YES Bank thing we should know how banks work or operate.
How banks earn money?
Bank usually earns from the loans.
Usually, the bank earns from the interest they are charging them who takes loans from the bank.
It might be a business loan, personal loan, car loan, or any type of loan.
But banks also give interest to their savings account holders. And banks also have many expenses like branch expenses, employee salary
So we can understand from
Banks Earning = Interest which Bank charges on loans – Interest Bank gives to saving account holder
– Bank’s expenses – Employee Salary
So if the bank charges 12% interest on loans and gives 4% interest on savings account and let’s assume 4% is bank’s expense then let’s calculate banks earning on every 100 rupees.
Banks Earning = Interest which Bank charges on loans (12) – Interest Bank gives to the savings account
holder(4) – Bank’s expenses & Employee Salary (4)
Bank’s Earning = 12-4-4
= 4 rupees
So this is a simple calculation of the bank’s earning. You may seem this is very low earning then you should see at the quants.
If the bank gives 1000 rupees a loan to the 1000 people then what will be the earning of the bank?
Bank’s Earning = 1000*(1000*12% – 1000*4% – 1000*4%)
= 1000*(120 – 40 – 40)
= 40,000 rupees
Bank’s earning increases with the no of loan holders and loan amount.
But what if one person doesn’t return money to the bank?
And what if 4-5 people don’t return money to the bank?
Whole profit will have vanished if only 4 people out of 100 don’t return money to the bank.
And this is called NPA. NPA stands for Non-Performing Asset.
It means a loan on which you are not getting any return.
So we can understand that if any bank has only 3-4% NPA then it will be a survival crisis for them. It is a very bad condition for any bank to be 3-4% NPA.
And this is where starts YES Bank’s problem.
Around 3 years ago if YES bank gives 100 rupees loan then 0.3 rupees out of 100 don’t return.
But in the last 18 months, ago when starts a problem in the economy and many companies start to default their loan.
They don’t repay their loan then YES bank’s NPA also starts growing.
Now, this time if YES Bank gives 100 rupee loans then around 2.5 rupees out of 100 don’t return.
What is NPA?
So in between 2 years, YES bank’s NPA grows from 0,3% to 2.5%.
It is almost 10 times than before.
The bank which is known as fundamentally strong.
Which is known as a bank with very strong lending practices?
People lose their faith in YES Bank.
Now If this NPA increases only 1% then YES Bank will be in a really huge problem.
Why This All Happened?
Where all the bank’s strategies are to give a low amount to a large number of people.
It is a low-risk strategy.
But Yes bank has different strategies.
YES Bank gives a huge amount to a very low no of people. YES Bank gives 1000 rupees to 10 people.
It is a high-risk strategy. It means if only 1 person out of 10 doesn’t return money to the bank then it will be 10% NPA for them.
YES Bank has corporate clients that’s why they deal with the bulk landing.
Where all banks give retail loans like 5 lack, 10 lack or 15 lack, YES bank deals with 100 crores, 500 crores.
That’s why suddenly YES Bank’s NPA grows so drastically.
Will YES Bank Recover?
Anyone can understand that this is a very negative thing that YES bank works high-risk strategy. It gives a very large amount of loans.
But this is their strength also.
When YES bank doesn’t have these problems before 2 years ago at that time yes bank grows very rapidly.
YES Bank grows more than 25% per year. Why they are growing so fast?
Because of their strategy. If they have money and any corporation needs a loan then they don’t have to work too much. Because corporate requires a large number of loans.
When YES bank gets their interest on their loan, they got a huge amount. If they gave 500 crores and charging 4-5% interest then they get 500*5% crore = 25 crores.
When YES bank gets their return, they get a huge amount.
Where all the banks have to spend more on sales, YES Bank doesn’t have to do the same.
There is also one another aspect Because corporations need a loan so they also have to maintain good relations to the banks so they also open their current account in the YES bank.
When all the big corporations open their current accounts in the yes bank then suddenly the bank gets a huge amount of money.
Corporate deposits some hundred crores at the same time. So yes the bank gets the fund on which they can earn.
At the same time, other banks have to work more on account opening and sales. The sales and marketing cost of YES Bank is very low. This is also a plus point for the YES Bank.
When it is a Risk & When it is a Reward?
YES Bank strategy is very good. But whenever the economy doesn’t do well it will be bad for YES bank.
And whenever the economy does well it will be good for YES bank as well as their shareholders also.
Nowadays the economy is not doing well. Because of this corporates also affect the economy especially large companies.
If it is a slow down or recession then large companies also have to suffer for their expenses.
And this is the time when most companies default their loans.
And when companies default their loans it will directly affect their respective banks.
But when the economy will do well, as a result, the company will also do well.
At this time banks do well but YES banks do more than other banks.
Their Accounts grow drastically the same as they are doing well 3 years ago.
YES Bank shows very impressive growth. It is obvious that they will show drastically negative in bad times.
Is this Good Time to Buy YES Bank?
Many people ask that is it a good time to buy YES Bank or not.
So there is not any specific answer to this question. It all depends upon which price you are buying YES bank.
That price will decide that is it a good investment for you or not.
When it was 300-400 price range, it was at its peak growth. And the economic cycle is also at its peak at that time.
That was not a good time to buy YES Bank But today it may be a good time.
Troubles in companies is a very common thing. But there are two types of troubles
- Temporary Troubles
- Permanent Troubles
You should buy those companies in which they have temporary trouble or panic.
That company is good but due to some reasons, some temporary problems in the market and that share is fallen.
Now you will ask that Jet Airways is also a good company?
The answer is a big No.
How will you know which company you should buy at the time of trouble and which not to buy?
You also should know that all the troubled companies are not good.
Because in some companies trouble is permanent.
That’s why I told you to buy only those companies which have temporary trouble.
So how will you find that trouble in the company is temporary or permanent?
So there are some filters to find temporary or permanent trouble.
You should pay attention to the companies business model.
Is the business model is not good? The industry is in danger? Is something going to change in the industry which can affect companies’ business?
See in the financial sector is very big.
There will be a lot of growth in the financial sector.
Credit demand is in their early stages. There are a lot of people who are going to attach to the mainstream of the banking system.
So there is much scope in the financial sector.
Yes, there is a lot of competition also. But every bank has a different specialization.
And because the market is big so there is space for everyone.
If we talk about Jet Airways. Is something is going to change in the industry?
No, Jet Airway’s airline market is also very big traffic is growing in India.
There will be a lot of growth. So there is not any problem with the jet airways industry.
Is YES bank is capable of giving good service to their customers?
Yes, there are not any problems for their customers. YES Bank is functioning normally.
Companies’ business has no danger.
Is something an issue with JET Aieway’s service?
See when Jet Airways was flying at that time their customer has no issue with their service.
They also serve meals to their customers.
So jet Airway’s customers also have no issue with their services.
Now the question is that, is companies financial condition week? Will this company be bankrupt?
So in the case of YES Bank, there is no issue at all. They are going to raise capital so they will have more money again.
And Yes Bank is financial stable at this time.
But in the case of JET Airways, their airline stops because of the money issue.
They have a lot of debt, they have a cashflow issue, they don’t have money so that they can buy fule of their airplanes or give salary to their employees.
So companies’ financial condition is very bad.
In the management of Jet Airways, they have many issues. Founder’s family of Jet Airways doesn’t want to step out of the board.
But the shareholders of the companies want to step them out from the board.
So there is a lot of fights between the company.
In the YES Bank, there were a lot of issues. But at this time many issues have solved.
The new management of the company is very conservative and sensitive.
After evaluating all these points we can sit that in YES bank there is a temporary problem which will solve economic growth.
This is the most important thing every successful stock market investor follows and you also should follow.
This Strategie says that you should invest 90% of your money on fundamentally solid and safe companies.
Which gives you consistent compounding and also doesn’t have many risks in your capital.
But 10% of the money you should invest in high-risk stocks.
So that you can get high returns on your investment.
Because these are high risks stocks so it may go opposite of your thinking.
If it happens then also it can’t get affect your overall portfolio.
YES Bank is also a high-risk stock So if you want to invest in Yes Bank make sure you will not buy Yes Bank more than 10% of your overall portfolio.
So this is the discipline that every successful stock market investor follows.