Why Yes Bank is raising $1bn despite being flush with cash

Yes Bank has decided upon the qualified institutional placement (QIP) route to raise USD 1 billion, which the bank had announced in June, CEO and MD Rana Kapoor told CNBC-TV18.In an interview, Kapoor talked about why Yes Bank is raising the funds, the response it has seen during the roadshow and the bank's business plans going forward.Below is the verbatim transcript of Rana Kapoor's interview to Surabhi Upadhyay on CNBC-TV18.Q: I believe it was on the June 7 when the board has approved this USD 1 billion capital raising, but can you lay down what roadmap or what different routes are you looking at. Is a rights issue on the table or not?A: First and foremost, we are very much on track to raise billion dollars in capital in the remaining part of this fiscal year, as was approved by the shareholders at the AGM in June. We contemplate a qualified institutional placement (QIP) in the course of this year and the QIP will be fairly widespread across international investors as well as some key domestic investors.Secondly, we also are covering a number of geographies because we have travelled extensively both myself and my key members of the management team and we have been to the US on investor engagement to Singapore, Hong Kong, to Europe and some of my colleagues have also been to South Africa. So, literally we have covered a lot of ground over the last few weeks in preparation for a capital raise in the latter part of this year. As I am sure you know August is a month full of holidays, lot of decision makers are away and we have reason to believe with the tailwinds in the economy, with the growth coming back as reflected in our recent financial disclosures for the quarter ended June as well as for the fiscal March 2016. We are fairly well conditioned and prepare for a capital raise in the course of this year.Q: Why primarily are you looking at raising over a billion dollar I think your capital adequacy ratio would be in excess of 15 percent right now, so what will be the primary use of the capital?A: You are absolutely right, our capital adequacy ratio presently exceeds 15 percent and our core tier 1 ratio is slightly above 10.3 percent. So we are seeing basically opportunities for growth. There are enough signs to believe that with the tailwinds of the monsoons and with the macroeconomics stability with India really shining, there are opportunities for a bank like ours to gain market share and also gain mine share and we are seeing excellent traction as you saw in the June quarter our loan growth was 33 percent, it was 30 percent in the March quarter.So we are seeing momentum on loan growth as we are seeing also naturally on our liability side, particularly current account savings account (CASA), so Yes Bank as a growth story for the next 4 years till 2020 is fairly intact and we have every reason to believe that a good dose of capital will only help us to grow faster and to grow and capture market share given our critical size and momentum now as a reasonably well sized small large bank.Q: Out of all the options available in terms of equity capital raising, why are you looking at QIP as the route and the second are you already started discussions with potential investors and perhaps you would agree that the market has been very excited with the Yes Bank’s story, the stock has seen a huge, huge run up and there is always a debate around valuations, what’s the feedback that you get?A: See the feedback is I must confess very, very positive because our bank represents relatively speaking a new basket of Indian growth in sunrise sectors and we have basically made investors from San Francisco all the way till Tokyo over the last 2-3 months and the feedback is very favourable, the bank is now more like a mid to large cap in terms of its overall market capitalisation. So larger investors are also showing a fair amount of interest and we have a reason to believe that given the consistent performance, preservation of asset quality, fairly steady growth on our loan book on our advances and with tremendous traction in liabilities with 900 branches, 17,500 people working in the bank, the retail story is spanning out very nicely. So the overall growth scenario for the bank, the outlooks look very encouraging. We will in all likelihood do a QIP with the very, very high pedigree investors in the later part of this year.Q: But no plans to go in for a rights issue?A: Well, rights issue is not part of our resolution. It will be basically a set of new investors, because we need to diversify and get a fairly good overall register of investors, investors which have a satisfactory appetite for the banks and the diversity of the capital as you know is also very, very important and we have reason to believe that we can get some very, very good pension funds from across the world.Q: Are you hoping to place these equities somewhere close to the current market price or do you think you can manage to negotiate a premium?A: If you see the overall outlook on the bank by a number of well established research houses, our bank is rerating and we have a reason to believe that with couple of more quarters of performance, we will raise this capital. The strategy is sooner than later, but I think we need to really get to an attractive valuation, which is fairly well underway and as and when we see enough receptivity and more good news as is percolating in the Indian economy, I have reason to believe that we will be out in the market in the later part of this year.