The YES Bank stock surged close to 35 per cent in intra-day trade on Thursday before closing with 24 per cent gains, after the private lender said it had received a binding offer from a global investor for an investment of $ 1.2 billion through fresh issuance of equity shares.
The stock, which ended at at Rs 70.45, was regaining lost ground from its 52-week low of Rs 29.05 made on October 1. This was the third-biggest single-day gain for the stock – it zoomed 33 per cent in early October and 30.7 per cent in mid-February. The investment would be subject to regulatory approvals as well as bank’s board and shareholders, the lender said in an exchange filing.
The bank had said last week it had received strong interest from multiple foreign and domestic private equity players and strategic investors and remains firmly on course to raising growth capital, subject to necessary approvals. It was reported earlier that the bank was trying to on-board global tech firms to be a strategic investor.
The name of the investor could not be ascertained and the bank refused to comment as it is in a silent period before declaring the quarterly results on Friday. YES Bank is in dire need of funds, as its tier-1 capital has been suffering because of higher provisions for its stressed loan book.
Ravneet Gill, managing director and chief executive, YES Bank, had told Business Standard earlier that his "first priority is capital". "We would want to strengthen the balance sheet in one go. We remain focused on our earlier plan to raise $ 1-1.2 billion capital, "Gill had said.
On the basis of Thursday’s closing price of the stock, the fundraising would dilute the equity stake by around 47 per cent, giving about 32 per cent stake in the bank to the new investor. The bank, however, has mentioned in its exchange filing that it continues to be in advanced discussions with other global and domestic investors.
According to Reserve Bank of India guidelines for ownership in private banks, an individual can own up to 10 per cent of the paid-up capital of the bank. Similarly, in case of entities from the financial sector, other than regulated or diversified or listed, the limit shall be at 15 per cent of the paid-up capital.
But the RBI can make exceptions. "In banks, where there are regulatory concerns and where a change in the management is necessary in the interests of the depositors, RBI may permit a person to acquire higher shareholding, even if the concerned bank's board does not support the same," the RBI circular had said.
YES Bank has seen turbulent times of late and is in the process of cleaning up its books. It provided Rs 3,661 crore in the March quarter and Rs 1,784 crore in the June quarter of FY20 for bad loans. The lender is also seeing a rise in slippages or loans turning bad. The bank has considerable exposure to the struggling NBFC sector and to the Anil Dhirubhai Ambani Group.
"There is a strong case for YES Bank. In the longer run, this is going to be good for the deposit holders, which is also what the regulator wants. After having seen that the bank is in bit of a spot, the regulator may try and help them out, "said Ashvin Parekh, managing partner at Ashvin Parekh Advisory Services.
The regulator last year had allowed Toronto-based Fairfax to invest $ 168 million for a 51 per cent stake in Catholic Syrian Bank. This was the first time the RBI allowed a foreign company to take a majority interest in a local lender.
In August, YES Bank had raised Rs 1,930 crore via qualified institutional placement at an issue price of Rs 83.55 a share. The bank needs funds to meet Basel-III capital requirements norms, to ensure adequate capital to support growth and expansion. The bank is just around the minimum regulators threshold and is in need to replenish.
Rohan Mandora, vice-president at Equirus Securities, said, "The development would help improve capital position of the bank, which should provide buffer to pass through the asset quality pain."
The common equity tier-1 (CET-1) capital of the bank, as of June 2019, was 8 per cent, close to the regulatory requirement of 7.375 per cent till March 2019 and 8 per cent till March 2020. A rough calculation, keeping risk-weighted assets unchanged at June 2019 quarter level, suggests that the new fundraising would boost the CET-1 level by over 260 basis points, which is expected to take care of the bank's bad loan portfolio.
However, it may not provide the desired growth capital for the bank, believes Mandora. According to June quarter numbers, net NPAs (non-performing assets) stood at Rs 6,883 crore or 26-27 per cent of its capital position. It also has Rs 400 crore exposure to Altico Capital, which defaulted on its loan obligations in the September quarter.