It’s been a tumultuous year for Yes Bank, a private sector lender, on the bourses. Investors scrambled to exit this counter as the lender’s lofty asset base that quickly turned into a liability.
That also required Yes Bank to raise funds and comply with the regulatory requirements on capital adequacy.
The board of India’s fourth-largest private sector lender is scheduled to meet today to consider and approve raising of funds by issue of equity, equity-linked securities.
Yes Bank aims to raise about $1.2 billion in the capital and says it has received offers from bidders including an unnamed North American family office.
With exposure to several troubled shadow banks, real estate firms and stressed companies, Yes Bank’s bad loans have risen sharply, forcing it to step up provisioning and eroding its capital.
The lender’s core equity capital is 8.70%, barely above the regulatory minimum of about 8%.
The lender reported a net loss of Rs 600 crore for the quarter ended September, hurt by a one-time deferred tax adjustment of Rs 709 crore on account of change in the corporate tax rate structure.
Yes Bank had reported a net profit of Rs 964 crore profit for the corresponding quarter previous year.
Regulatory compulsion saw the exit of its promoter and CEO Rana Kapoor. The lender being pulled up for under-reporting it’s strained assets continue to add pressure.
However, of late, the lender witnessed a revival in its fortune as new management has decided to stay on the retail-focused granular business model and strengthening liability franchise, which is emerging as the bank’s biggest asset.
What are the headwinds indicating for Yes Bank ahead?
For Yes Bank, given the stress recognition, capital infusion is the need of the hour and the ability to achieve the same is very high.
Total sensitive sector exposure is 20% of the portfolio while BB & below portfolio is at 14% and this makes us believe that stress is largely recognized.
Higher the asset quality deterioration, higher would be the capital requirements of the bank going forward
Going ahead even if the bank is able to raise capital, future profitability would be dependent on incremental NPAs and balance-sheet growth where the visibility is extremely poor.
Mgmt reiterated in concall that it has received a binding offer of $1.2 bn from one of the US-based financial institutions. This offer lapses by 30th November and pricing shall be calculated based on the last 2 weeks’ average price.
Besides this, it has also received 8 bids from PE & other domestic funds amounting to $1.5 bn. Also, similar interest from 2 domestic entrepreneurs and 2 domestic financial institutions which amounts to $350 mn
While the quantum of capital raised, timing and approvals for the same is the key ahead. Any capital infusion shall be positive for the bank.
However, the bank would need sizeable quantum of funds given steep deterioration in its asset quality profile
Other factors which will drive interest in this stock ahead will be whether the proposed fundraising is either via pure equity or preference shares and the Pedigree of investors participating in this capital raising exercise will be closely watched by the markets ahead.
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