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Yes Bank fund raising: 5 reasons likely keeping marquee investors away

While the market is abuzz on what could be stopping them from closing the deals, here's a look at five reasons why the country's fourth largest private lender is not able to attract interest from top quality investors:

December 11, 2019 / 08:16 PM IST
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On November 1, Yes Bank's Managing Director Ravneet Gill talked about having $3 billion worth of offers from potential investors on the table. Five weeks and two board meetings later, the private lender is yet to take a call on capital raising.

Moreover, the list of lesser-known investors got a big thumbs down from markets on concerns that they might not fit the bill as per regulatory norms.

While the market is abuzz on what could be stopping them from closing the deals, here's a look at five reasons why the country's fourth-largest private lender is not able to attract interest from top-quality investors:

No relief from stressed assets

The Indian banking sector has been marred with rising bad loans and high provisioning requirements. Investors are on a lookout for banks with relatively cleaner balance sheets. In such a scenario, Yes Bank reported slippages of Rs 12,175 crore in the first half of FY20, the highest as compared to other private lenders.

Regulatory lapses

The lender reported bad loan divergences of Rs 3,277 crore for the financial year 2018-19. The divergence in net NPAs stood at Rs 2,299 crore, which was 51 percent of the net NPAs reported by the bank. The bank also reported divergence in provisioning at Rs 978 crore as on March 2019. This was the third such year where bad loans assessed by the regulator were higher than those reported by the bank.

Liquidity under pressure

Last week, Moody's downgraded Yes Bank's issuer ratings and bank deposit ratings and lowered the outlook to negative on concerns that the likely slippages and low loss-absorbing buffers against bad loans, will add pressure to its funding and liquidity in future. The global rating agency also said Yes Bank's position in this area compares weakly to its peers and may come under pressure if the bank does not strengthen its solvency in coming quarters.

Capital woes unlikely to end soon

Even if the bank is able to go ahead with its plan to raise $2 billion now, it will take more to restore the capital adequacy levels. As per Macquarie's estimates, the capital required by the bank could go up to $3-3.5 billion over the next 18 months, if fresh slippages are not contained. Investors face the risk of continued dilution going ahead.

Legacy under threat

Yes Bank's founder and former chief Rana Kapoor's role in extending certain loans came under scanner after allegations of irregularities were raised by a whistleblower. While the audit conducted by JLN US & Co. was inconclusive, reports suggest fresh investigations have been sought into the matter.

Kapoor stepped down from the top post in January 2019, as the banking regulator did not extend his appointment on grounds of weak governance and compliance issues. Kapoor also lost the promoter tag after he offloaded Yes Bank's shares in tranches, leading to an unceremonious exit from the bank in less than a year.

The bank's rapid growth in a short span despite a challenging business environment and its significance in the country's banking system seems to be the only saving grace amid all uncertainties.

However, it remains to be seen if Gill can bank upon this franchise to raise some good quality capital and steer the lender out of troubled waters soon.

Parnika Sokhi
first published: Dec 11, 2019 08:16 pm

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