Yes Bank was once a much-loved lender on Dalal Street with consistent earnings growth and a surging stock. One of India’s newest private-sector lenders, it made its stock market debut in 2005, with the IPO priced at Rs 45 at the upper end of the band. It would go on to hit a high of Rs 1,884.85 in September 2017, before its stock was split that year. That is a 4,000 per cent gain in 12 years. On Friday morning, the shares were down 45 per cent at Rs 20.30 on the BSE.
In recent years, however, the bank has been troubled with several issues. First, there was a spat between the promoters Rana Kapoor and Madhu Kapur. Then it was disclosed that Yes Bank had underreported bad loans by Rs 3,277 crore in the year ending March 2019.
In early 2019, Deutsche Bank’s Ravnit Gill was roped in as a successor to Rana Kapoor; RBI had refused to allow co-promoter Rana Kapoor to continue as CEO in September 2018. As bad loans have risen and provisions increased, the lender has been looking to raise funds for some time now, but with little success.
In August 2019, it raised Rs 1,930 crore via share sale to institutional investors. However, talks with several investors haven’t fructified since.
Running out of patience and perhaps worried over what lay ahead if Yes Bank was unable to raise funds, the Reserve Bank of India in a swift move on Thursday night, superseded the bank’s board and Prashant Kumar, the former chief financial officer of State Bank of India was appointed as an administrator.
“The financial position of Yes Bank has undergone a steady decline largely due to inability of the bank to raise capital to address potential loan losses and resultant downgrades, triggering invocation of bond covenants by investors, and withdrawal of deposits. The bank has also experienced serious governance issues and practices in the recent years which have led to a steady decline of the bank,” RBI pointed.
It further noted that while the bank did hold discussions with private equity investors to raise funds and these investors had also held discussions with senior RBI officials, eventually, they didn’t infuse any capital. So, in the absence of a “credible” revival plan, the central bank was left with little choice but impose a moratorium.
The move came barely six months after the Punjab and Maharashtra Cooperative Bank was superseded by the RBI after a Rs 6,500 crore fraud was unearthed at the multi-state cooperative bank.
Even as efforts to rescue that bank continue at its pace, things seem to be moving rapidly as far as Yes Bank goes, at least for now.
The central board of SBI also met on Thursday and late night, the country’s largest lender announced, it had received approval from the board to explore investment in Yes Bank.
Reports have suggested that the government has given a go-ahead for a consortium of banks led by SBI to invest in Yes Bank. Life Insurance Corporation of India, the country’s largest insurance company could also come to the rescue of the bank.
For now, withdrawals from Yes Bank will be restricted to Rs 50,000 till April 3. However, the RBI has said depositors should not panic and it has tried to assuage people that “it will draw up a scheme in the next few days for the bank’s reconstruction or amalgamation and with the approval of the Central Government put the same in place well before the period of moratorium of thirty days ends.”
Yes Bank was once the country’s fourth-largest private bank. It still has a net worth of close to Rs 25,000 crore. But, with deteriorating asset quality, that wouldn’t count much say some analysts.
“Its below investment grade book (BB and below) is at Rs 30,000 crore and BBB book is at Rs 50,000 crore. If we assume substantial proportion of BB and below book is wiped off and say 10-15 per cent of BBB book is to be written off, it implies the current net worth of the bank is zero (after factoring in 25 per cent of tax benefits),” Suresh Ganapathy, analyst at Macquarie Capital Securities wrote on Thursday.
At the end of the quarter ending September 30, 2019, Yes Bank reported a net loss of Rs 600 crore on a one-time tax hit and rising provisions. Its gross non-performing assets surged to 7.39 per cent in the second quarter from 5.01 per cent in the June quarter and 1.60 per cent a year ago. Its provisions increased 42 per cent year-on-year to Rs 1,336 crore.
Apart from the high NPAs, the lender has also seen a steady outflow of deposits, which will also be a worry for any potential investor. As of September 30, Yes Bank’s deposits stood at a little over Rs 2.09 lakh crore, down from Rs 2.28 lakh crore, in the year-ago quarter and Rs 2.27 lakh crore in the March quarter.
Investment UBS Bank sees two possibilities now. Either, government or public sector firms will infuse capital in Yes Bank or there is a possibility that after the initial investments, the bank will raise funds from the markets later.
“Ideally and theoretically speaking, SBI and other PSU banks need to buy the bank at Rs 1,” Ganapathy of Macquarie had said.
JP Morgan, too, has cut its target price on Yes Bank to Rs 1. Saurabh Kumar of JP Morgan believes its incrementally negative for SBI.
“It sets a precedent for the nationalisation of any future private losses,” he said.
In the quarter ended December 31, 2019, SBI reported a record net profit of Rs 5,583 crore, up 41 per cent year-on-year, while net interest income jumped 22 per cent to Rs 27,779 crore. Its gross NPAs stood at 6.94 per cent, versus 8.71 per cent a year ago.
For SBI or any other public sector bank, dealing with the higher NPAs at Yes Bank will be the biggest challenge, considering that they have had to battle their bad loan problems in recent years.
“Forced bailout investors especially if part government-owned will likely need equity to be heavily marked down, resulting in an almost complete erosion of book value per share,” said Kumar of JP Morgan.
SBI shares were down more than 6 per cent at Rs 270.05 on the BSE on Friday morning.
The broader BSE Sensex was down 1,205 points or 3.1 per cent at 37,265.29 points, tracking a carnage in global markets.
