Yes Bank open to acquiring microfinance entity as $1.1 billion fundraise gains pace, MD says

YES Bank MD & CEO Prashant Kumar

Private sector lender Yes Bank is open to acquiring smaller entities, especially from the microfinance segment, if the target entity is a good opportunity to make investment returns, its Managing Director and Chief Executive Officer (MD and CEO) Prashant Kumar told Moneycontrol on August 3. His comments came after the bank announced on Friday that it would be raising $1.1 billion in equity capital from private equity investors Carlyle and Advent International.

“Wherever there is an opportunity for inorganic growth, whether it is the purchase of a pool of assets or some entities in microfinance or other industries, we would like to examine and if it is a good opportunity, we would like to acquire,” the MD said.

“Microfinance is something which we would like to explore because that is something which we are not doing in the bank. If you start building up those capabilities in the bank, it will take a lot of time. If you have some good platforms to invest in, which makes sense for you, you may acquire them and they will provide growth for you,” he added.

Kumar said capital was not a constraint for Yes Bank, even at the beginning of this fiscal, when it charted out a 15 percent year-on-year (YoY) advances growth target for itself. However, even as the bank now has access to fresh capital, it will not pursue aggressive growth by pushing big-ticket loans. The focus would rather be more on medium enterprises loans, and also consortium loans for large corporates.

“Just after getting capital, it may not be that we would be jumping to a loan growth which may not be relevant with current times,” Kumar said when asked whether the bank has set fresh targets for loan growth.

“We are very careful to not compromise on the quality of the loan book. Since now there is no capital constraint, the bank has the ability to grow, but it would depend on how things change in the broader macroeconomic environment,” he added.

As on June end, Yes Bank’s total advances stood at Rs 1.86 lakh crore, up 3 percent sequentially and 14 percent YoY.

Fundraise

Post the $1.1 billion fundraise, Yes Bank will not approach the capital markets for another fundraise at least for the next three-four years, Kumar said. The bank had last raised money in 2020 when it approached near bankruptcy, and India’s largest lender State Bank of India (SBI), along with other lenders rescued it with over Rs 10,000 crore capital infusion.

The embargo on SBI and other lenders to hold their shares in Yes Bank, as part of the reconstruction scheme, lifts in 2023. Though one bank having a stake in another bank is morally wrong, SBI could continue to maintain its holding in Yes Bank even after the embargo ends on account of a good return on investment, Kumar said.

“If any investment is giving me a good return, I have seen, as a behaviour, people would like to continue. But again, these calls will be taken by individual entities,” he added.

As on June end, SBI holds a 30 percent stake in Yes Bank, while ICICI Bank held 3 percent. Axis Bank, IDFC First Bank and Bandhan Bank held between 1 percent and 2 percent each in Yes Bank as on June 30.

With respect to new investors, Kumar said they want a nominee on the bank’s board but the final call will be taken by the bank’s nomination and remuneration committee.

The nomination also requires candidates to pass fit and proper criteria set up by the Reserve Bank of India (RBI), and the proposal must be approved by shareholders as well, the MD said.

“The name of the nominee has to be told to us by the investor. So far there have not been any conversations with investors around the name of the nominee,” he said.

ARC updates

Yes Bank’s stressed loan auction sale of up to Rs 48,000 crore is on track and the bank may complete the same in September, Kumar said.

The bank’s board had on July 15 approved US-based JC Flowers Asset Reconstruction Company's over Rs 11,000 crore bid to be considered as the base bid for the proposed sale of stressed assets via the Swiss challenge auction.

“As a process, when we launched the Swiss challenge, we invited expression of interest (EoIs). Two EoIs have come. Now we will be opening our data room. Now they need to conduct due diligence on the assets,” the MD said.

The bank has given investors time till three weeks after which they will be required to submit a binding financial bid. The binding financial bid must be higher than the base bid, “at least five percent more than that,” Kumar said.

Once the new bid arrives, JC Flowers will opt for the first chance to match the bid amount, or else the loans will be assigned to the highest bidder, Kumar reiterated.

Depending on the outcome of the Swiss challenge auction, the bank will take a final call on whether or not to invest up to a 20 percent stake in a JC Flowers-led ARC. Yes Bank can invest up to Rs 350 crore in the ARC for up to 20 percent stake with RBI approval, Kumar said.