YES Bank bailout plan and investor apathy

The consortium led by the State Bank of India (SBI), Life Insurance Corporation of India (LIC) and others to acquire stake in the troubled private sector lender YES Bank is a welcome, as far as financial markets and the lender in question is considered, but for retail and institutional investors the decision, it seems, is likely to bring more agony for now.

Retail and institutional investors of YES Bank must be feeling stuck in bad assets as analyst and experts are pointing at bad asset quality while pegging the enterprise value of YES Bank awfully low.

Analyst say that the 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.

Others believe that SBI and LIC may pick up 49% stake in YES Bank by acquiring preferential shares at Rs 2 per share. The deal size is estimated at Rs 490 crore. As regards regulations, SBI will likely be given exemption from making an open offer.

This leaves retail and institutional investors in a quandary. YES Bank institutional investors include LIC (8.06%), HDFC (2.27%) and some other big names. As the lenders valuation take a knock, the reflection in price is evident.

Over the past one year, shares of YES Bank have nosedived a whopping 88% against over 2% rise in the benchmark Nifty50 index.

Meanwhile, the SBI and other investors, may pool in a meaningful equity for YES Bank to absorb stress and help reorient its balance sheet towards growth.

The lender has took on its chin following the tough bad loan recognition and provisioning norms introduced by the Reserve Bank of India. Yes Banks balance sheet has been shrinking since last few quarters.

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