Cash starved Yes Bank taps PE funds; plans to raise Rs 15,000 crore as it hunts for capital

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Updated: Jul 01, 2020 8:08 AM

Indeed, some of these institutions have announced plans to beef up their own capital bases as the pandemic has intensified uncertainty about the economic outlook.

Financial institutions that had picked up stakes in Yes Bank in March to prevent the Yes Bank from collapsing and, thereby, causing a systemic crisis, are unlikely to bring in more capital in the next round of capital-raising.Financial institutions that had picked up stakes in Yes Bank in March to prevent the Yes Bank from collapsing and, thereby, causing a systemic crisis, are unlikely to bring in more capital in the next round of capital-raising.

Yes Bank is in advanced talks with a clutch of domestic and international private equity (PE) funds, who are expected to acquire stakes in the lender and a deal is likely to be locked by mid-July, people aware of the development told FE. The lender plans to raise Rs 15,000-crore capital through share sale, ADRs, GDRs and bonds to meet its capital needs for two years. Prashant Kumar, the MD & CEO of Yes Bank, did not respond to FE’s queries till time of going to press.

Financial institutions that had picked up stakes in Yes Bank in March to prevent the Yes Bank from collapsing and, thereby, causing a systemic crisis, are unlikely to bring in more capital in the next round of capital-raising. In the first round, ICICI Bank, Axis Bank, Federal Bank, IDFC First Bank, Bandhan Bank, Housing Development Finance Corporation (HDFC) and Kotak Mahindra Bank — had pumped in Rs 10,000 crore equity capital into Yes Bank in March. In response to an email seeking comment on Yes Bank’s capital-raising plans, an HDFC spokesperson said, “The HDFC management has not yet had any discussions on this subject.” Bandhan Bank declined to comment. The other institutions did not respond to emails till the time of going to press.

Indeed, some of these institutions have announced plans to beef up their own capital bases as the pandemic has intensified uncertainty about the economic outlook. Moreover, a loan moratorium is likely to be masking the true state of asset quality of bank books. Not surprisingly, infusing more money into another bank is not top most on their minds. Having said that, some of them, such as Bandhan Bank, are still understood to be discussing the matter internally, though no decision has been arrived at yet. Also, one bank investing in the shares of another entails a risk weight of 250%, which becomes a serious drag on their capital bases. Bankers say it is not viable for one bank to invest in the capital of another bank.

At the end of March 2020, Yes Bank’s capital adequacy ratio (CAR) stood at 8.5% and its common equity tier1 (CET1) ratio was 6.3%. While the bank’s liquidity situation will temporarily receive help from the RBI’s special liquidity window of Rs 50,000 crore, which has just been rolled over by another three months, scarce capital is a problem to which it must find a quick cure.

What is near-certain is that SBI will continue to have Yes Bank’s back. “The understanding is that if they bring in some money from other investors, the shortfall will be made good by SBI. So if they bring in, say, Rs 8,000 crore, SBI will chip in with the rest,” said one of the people aware of the development.

Soon after Yes Bank was brought under moratorium on March 5, SBI chairman Rajnish Kumar had said that there are many potential suitors for Yes Bank who have approached SBI and there are good names among them. “Even in troubled institutions, be it an NBFC, HFC or a bank, there is considerable interest in the financial sector of the country. Investors are seeing an opportunity here,” Kumar said. “For Yes Bank also, people have reached out. These are all initial discussions and our investment team will discuss with them, work out what are the possibilities which meet regulatory guidelines and then of course, in consultation with Reserve Bank of India, subject to their complying (with) ‘fit and proper’ criteria,” Kumar had said, adding that any resolution plan will have to be vetted legally and will be subjected to a detailed due diligence process. Thereafter, it will go to the board of SBI. “The final decision rests with the board of SBI,” he added.

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