Bad bank may start with Rs 60K-crore NPAs; govt may put in Rs 10K crore

Banking lobby group Indian Banks' Association (IBA) is expected to take the proposal, which is on the lines of the Sashakt panel recommendations, to the finance ministry this week.

Banks are likely to move big-ticket bad loans amounting to over Rs 60,000 crore to an asset reconstruction company (ARC), which will focus on turning around non-performing assets (NPAs) and enhancing value. Banks are likely to transfer more stressed assets going forward.

The government could invest up to 50 per cent of the capital in the “bad bank” with a contribution of about Rs 9,000-10,000 crore, said sources.

The ARC is expected to take up both old and new cases, bankers said.

Banking lobby group Indian Banks’ Association (IBA) is expected to take the proposal, which is on the lines of the Sashakt panel recommendations, to the finance ministry this week.

The panel had recommended that large bad loans could be resolved under an ARC. The IBA plan envisages setting up of three entities — an ARC, an asset management company (AMC), and an alternative investment fund (AIF) to acquire bad loans from banks with an aim to turn around those assets.

The ARC will acquire and aggregate the asset, the AMC will manage the assets — including takeover of management or restructuring of assets, and the AIF will raise funds and invest into securities floated by the ARC.

The proposed ARC will have to be backed by the government. A similar arrangement was done in the case of IDBI Bank where a stressed assets management fund was created, bankers added. The coronavirus pandemic is expected to result in a rise in NPAs of banks despite steps like allowing a 90-day moratorium on retail loans and relaxing working capital financing norms.

YES Bank auditor red-flags multiple breaches of RBI's norms in FY20

Bank sets aside Rs 334 cr for expected penalty for SLR breach.

The auditor of YES Bank has pointed out multiple breaches of the Reserve Bank of India’s (RBI’s) norms and loan covenants by the private bank in the financial year ended March 2020, warning that these may impact the bank’s ability to continue as a going concern.

The auditor, BSR & Co, also said that as the fate of the bank’s additional tier-1 (AT-1) bonds remained uncertain — as the matter is pending in court — any adverse judgment would affect it adversely.

The bank has breached the regulatory requirements of the RBI regarding maintaining the minimum common equity tier-1 (CET-1) and tier-1 capital ratios, which indicates the position of capital adequacy of a bank. “The breach is primarily on account of the increase in the provision for advances during the year ended March 31, 2020, as the bank has decided, on a prudent basis, to enhance its provision coverage ratio on its non-performing asset (NPA) loans over and above minimum RBI loan level provisioning,” the auditor’s report said.

It said the bank had incurred a loss of Rs 16,418 crores for the year ended March 31, 2020. During the last six months of fiscal 2020, there has also been a significant decline in the bank's deposit base, an increase in its non-performing assets or bad loan ratios, resulting in breach of loan covenants on its foreign currency debt and credit rating downgrades, it said. This resulted in partial prepayment of foreign currency debt linked to external credit rating.

“The bank has breached minimum statutory liquidity ratio (SLR) and liquidity coverage ratio requirements of the RBI during the year and has provided an amount of Rs 334 crores for the expected penalty on the SLR breach,” said the report.

Statsguru: From SBI to ICICI Bank, lenders come to YES Bank's rescue

The bank, however, could not hide its bad debt under the carpet for long as RBI auditors forced all banks to disclose their bad debts.

The problem at YES Bank was not so apparent till the Reserve Bank of India (RBI) refused to grant an extension to its managing director and chief executive officer Rana Kapoor, back in September 2018. The bank board then hired Ravneet Gill of Deutsche Bank to replace Kapoor. However, the problems started emerging as it struggled to raise capital. The lender started shrinking its loan book since March 2019 (Chart 1), but deposits remained healthy (Chart 2) as the general public was sure that, despite the troubles at the bank, they won’t fail.

The bank, however, could not hide its bad debt under the carpet for long as RBI auditors forced all banks to disclose their bad debts. YES Bank had the highest divergence among private sector banks, and cautioned by the RBI auditors, it started reporting higher bad debt since the September 2018 quarter (Chart 3). Even as the bank struggled to raise capital, its capital adequacy remained strong till the December quarter numbers were disclosed. We now know that the bank under-reported bad debt.

But it all changed after the central bank’s crackdown and the December 2019 quarter results showed the rot in the bank. Capital adequacy ratio plummeted (Chart 4) as the bank had to provide for its huge pile of bad debt, and share price nosedived, sinking the market capitalisation (Chart 5) till the government and the RBI decided to rescue the bank and bring other lenders, including State Bank of India, to put in equity capital (Chart 6). With the moratorium lifted on March 18, YES Bank has restarted its operations as a full service bank. It has enough liquidity to honour its deposits of Rs 1.65 trillion. And the RBI has now opened a credit line of Rs 60,000 crore for the bank to tap.

StatsGuru is a weekly feature. Every Monday, Business Standard guides you through the numbers you need to know to make sense of the headlines. Source: CapitalLine; compiled by BS Research Bureau.

Coronavirus impact: Fitch cuts India growth forecast to 5.1% for FY21

The difficulties facing the Indian economy have been exacerbated by Yes Bank failure, it said.

Fitch Ratings on Friday cut India's growth forecast to 5.1 per cent for FY 2020-21, saying the coronavirus outbreak is likely to hit business investment and exports.

Fitch had in December 2019 projected India's growth at 5.6 per cent for 2020-21 and 6.5 per cent in the following year.

In its Global Economic Outlook 2020, Fitch said the number of people affected by coronavirus will keep rising in the coming weeks but that the outbreak will remain contained. However, there are downside risks to this scenario.

ALSO READ: Janata curfew, economic task force: Modi scales up coronavirus fight

"Supply-chain disruptions are expected to hit business investment and exports. We see GDP growth to remain broadly steady at 5.1 per cent in the fiscal year 2020-2021 following growth of 5.0 per cent in 2019-2020," Fitch said.

For 2021-22, Fitch projected India's growth to be 6.4 per cent.

"The outbreak of the virus is hitting sentiment, while local governments have rolled out measures to contain the spread of the virus, such as closing schools, cinemas and theatres. While India's linkages with China (e.g. trade and tourism) are modest, manufacturers in India are heavily reliant on key Chinese intermediate inputs especially of electronics and machinery and equipment," Fitch said.

The WHO has declared coronavirus pandemic. Over 2 lakh people have been infected globally and the disease caused by it COVID-19 has claimed over 9,000 lives. In India, there are about 195 positive cases and 4 deaths so far from the deadly virus.

All banking services to resume from evening; ATMs have cash: YES Bank

On March 5, the RBI had imposed a moratorium on YES Bank, restricting withdrawals to Rs 50,000 per depositor till April 3 in view of its poor financial health due to bad loans.

YES Bank, on which the Reserve Bank of India (RBI) had imposed a moratorium, will resume normal operations from 6 pm on Wednesday.

On Tuesday, administrator of the troubled private sector lender, Prashant Kumar, said that YES Bank will resume normal operations from 6 pm on March 18 and it has no liquidity problem.

"Our customers will be able to enjoy all the services available before the moratorium. There is absolutely no issue on the liquidity side from YES Bank. All our ATMs are full of cash," he had said at a press conference.

Kumar had also said there is no need to worry about deposits. "Complete normalcy will be restored. All branches and employees are ready. If there is too much rush of depositors, the bank branches will remain open on weekends as well," he had added.

On March 5, the RBI had imposed a moratorium on YES Bank, restricting withdrawals to Rs 50,000 per depositor till April 3 in view of its poor financial health due to bad loans.

"Only one-third of our customers have withdrawn Rs 50,000 during the moratorium. The customer feedback is that they do not feel the need to withdraw money from the bank. We have had higher inflows than outflows in the last few days," Kumar had stated.

At the same press meet, State Bank of India (SBI) chairman Rajnish Kumar said that the lender is free to sell shares but assured that not one share will be sold in the next three years.

"We are not against retail shareholders. We are all here to protect them," he had said.

The SBI has announced an investment of Rs 7,250 crore in YES Bank through the acquisition of 725 crore shares at Rs 10 each. SBI's shareholding in YES Bank after reconstruction will be within the 49 per cent limit.

On March 13, the Union Cabinet approved a reconstruction scheme for YES Bank as proposed by the RBI.

On March 16, YES Bank approved the reconstitution plan, appointing Kumar as the Chief Executive Officer and Managing Director.

YES Bank looks to contain slippages to around Rs 8,500 crore in FY21

Its standard advances after subtracting net NPAs were about Rs 1.75 trillion at end-December.

After adding Rs 23,000 crore to its gross non-performing assets (NPAs) in the December quarter, ailing YES Bank now says it hopes to contain this slippage to around Rs 8,500 crore in the coming financial year (which begins April 1).

Its standard advances after subtracting net NPAs were about Rs 1.75 trillion at end-December. Advances were Rs 1.86 trillion and net NPAs at Rs 11,114 crore.

The slippage ratio (standard advances becoming NPAs) will be brought to 5 per cent in 2020-21, from 11.98 per cent in the December quarter, according to a presentation for analysts. The vulnerable portfolio, loans that have high chance to slip into NPAs, is Rs 13,911 crore at end of December 2019. These are special mention accounts (SMA) categorised in terms of duration. In the case of SMA -1, the overdue period is between 31 and 60 days. An overdue between 61 to 90 days will make an asset SMA -2.

Gross NPAs at end-December were Rs 40,709 crore, up from Rs 5,159 crore a year before (and Rs 17,134 crore at end-September 2019). With the huge provisioning for bad loans, the bank posted a loss of Rs 18,564 crore in the December quarter.

Provisioning for NPAs and write-offs rose about 10-fold to Rs 22,238 crore in that quarter, from Rs 2,214 crore in the earlier one. It had provided Rs 507 crore on this account in the December quarter of 2018-19.

The Provision Coverage Ratio (PCR) increased to 72.7 per cent for the December quarter, from 43.1 per cent in the September quarter. The higher PCR would enhance the ability to offload these assets from the balance sheet, to further release capital, YES Bank stated in the presentation.

While determining NPAs and related provisioning requirements for October-December, it considered slippage in NPAs after this date till that of the publication of financial results (March 2020), it said. This change resulted in recognition of additional loans of Rs 5,150 crore as NPAs and related provisioning requirement of Rs 772 crore for the quarter.

Additionally, considering the economic environment and significant increase in NPAs, the Bank decided to enhance its PCR on bad loans over and above the Reserve Bank-mandated requirement. As a result, additional provisioning of Rs 15,422 crore for the quarter, it said.

IDFC First Bank plans to invest Rs 250 crore in crisis-hit YES Bank

The authorised capital of Yes Bank has been increased to Rs 6,200 crore, Finance Minister Nirmala Sitharaman said on Friday.

IDFC First Bank on Sunday said it would make an equity investment of Rs 250 crore in beleaguered YES Bank, to acquire 250 million equity shares.

“...duly authorised committee of the Board of Directors of IDFC FIRST Bank had at its meeting held on March 14 accorded approval for an equity investment of up to Rs 250 crore comprising up to 250 million equity shares at a price of Rs 10 each and face value of Rs 2 each, under the proposed Scheme of Reconstruction of YES Bank under the Banking Regulation Act, 1949, subject to regulatory and government approval(s), if any,” the bank said in a BSE filing.

The Centre on Saturday notified the YES Bank Reconstruction Scheme, 2020, a day after the Cabinet approved a reconstruction plan proposed by the Reserve Bank of India for bailing it out. .

The authorised capital of Yes Bank has been increased to Rs 6,200 crore, Finance Minister Nirmala Sitharaman said on Friday.

As per the reconstruction scheme, moratorium on the troubled lender will be lifted on March 18.

Under the plan, state-run SBI will infuse Rs 7,250 crore in the crisis-ridden bank and take 49% equity.

As per the rescue plan, ICICI Bank will invest Rs 1,000 crore, mortgage lender HDFC ₹1,000 crore, Axis Bank ₹600 crore, Kotak Mahindra Bank Rs 500 crore, Bandhan Bank and Federal Bank Rs 300 crore each.

There will be a three year lock-in period for all the investors. However, the lock-in period for SBI would be only for 26 per cent of shareholding. It would be 75 per cent in case of other investors.

Union Cabinet clears draft resolution scheme for YES Bank revival

The scheme was announced a day after the RBI imposed a month-long moratorium on YES bank.

The Union Cabinet on Friday cleared a draft resolution scheme for cash-starved YES Bank, according to TV reports.

Last week, the Reserve Bank of India (RBI) had announced a draft scheme of reconstruction for the lender, according to which the strategic investor in the bank would pick up 49 per cent stake and not reduce holding to under 26 per cent before three years from the date of capital infusion.

The scheme was announced a day after the RBI imposed a month-long moratorium on the bank, restricting withdrawals to Rs 50,000 per depositor till April 3.

State Bank of India (SBI) on Thursday said it would infuse Rs 7,250 crore into ailing YES Bank and pick 7,250 million shares at Rs 10 each, and its shareholding would remain within 49 per cent of the paid-up capital of the private sector lender.

ALSO READ: SBI to invest Rs 7,250 cr in crisis-hit YES Bank as part of RBI rescue plan

“The executive committee of the central board at its meeting on March 11 accorded approval for purchase of 7,250 million shares of YES Bank at a price of Rs 10 a share, subject to regulatory approvals,” SBI said in an exchange filing on Thursday

SBI to invest Rs 7,250 cr in crisis-hit YES Bank as part of RBI rescue plan

Under the reconstruction scheme, SBI is to buy up to 49 per cent of YES Bank and cannot reduce its holding below 26 per cent for the next three years.

State Bank of India (SBI) on Thursday said it would infuse Rs 7,250 crore into ailing YES Bank to pick up to 49 per cent equity as part of the Reserve Bank of India-mandated bailout plan.

SBI will pick 7,250 million shares at Rs 10 each, and its shareholding will remain within 49 per cent of the paid-up capital of the private sector lender.

Under the restructuring scheme, the authorised capital shall stand altered to Rs 5,000 crore.

The number of equity shares will stand altered to 24,000 million of Rs 2 each aggregating to Rs 4,800 crore.

SBI’s stake in altered capital is expected to be 30 per cent, going by the restructuring scheme. “The executive committee of the central board at its meeting on March 11 accorded approval for purchase of 7,250 million shares of YES Bank at a price of Rs 10 a share, subject to regulatory approvals,” SBI said in an exchange filing on Thursday.

Under the reconstruction scheme, SBI is to buy up to 49 per cent of YES Bank and cannot reduce its holding below 26 per cent for the next three years. The SBI investment of Rs 7,250 crore is much higher than the Rs 2,450 crore it had planned initially for 49 per cent stake in the private sector lender.

Last week, SBI Chairman Rajnish Kumar had said the bank would invest Rs 2,450 crore to buy 2,450 million shares of YES Bank. SBI was also in talks with other investors, and SBI investment would not exceed Rs 10,000 crore.

On March 5, the RBI had imposed a moratorium on YES Bank, restricting withdrawals to Rs 50,000 per depositor till April 3.

The RBI also superseded the board and placed it under an administrator, Prashant Kumar, who is a former deputy managing director and chief financial officer of SBI.

The administrator will take on board results for third quarter on Saturday. The final restructuring scheme is expected to be finalised on Friday.

YES Bank is banking on investment by SBI, speedy resolution with support from the RBI and SBI, and fundraising plans to instil confidence among customers, according to administrator.

YES Bank bailout may renew fund, liquidity pressure on NBFIs: Fitch

The move comes even as the impact of coronavirus is beginning to be felt in India, raising further risks to economic growth and NBFI asset quality.

Rating agency Fitch on Wednesday said non-bank financial institutions (NBFIs) in India could face renewed pressure on funding and liquidity following the bailout of ailing private sector lender YES Bank.

The Reserve Bank of India (RBI) hammered out a restructuring package — by roping in State Bank of India and imposing a moratorium on withdrawals — to salvage the private bank.

This could compound the credit squeeze across the country’s financial system, adding to the economic uncertainty, Fitch said.

The move comes even as the impact of coronavirus is beginning to be felt in India, raising further risks to economic growth and NBFI asset quality. Rising asset quality and funding risks will place pressure on ratings if conditions worsen.

The NBFI sector’s direct exposures to YES Bank should be modest, as the bank’s difficulties have been known for some time, and companies have had time to pare back exposure.

YES Bank’s advances to NBFIs were roughly 1-2 per cent of the sector’s total bank funding. Also, the sector’s asset exposures to the bank would similarly be moderate.

YES Bank crisis: Links between BJP & Rana Kapoor well known, says Congress

Congress alleged the loans given by YES Bank rose 100 per cent in just two years after demonetisation from Rs 98,210 crore in March 2016 to Rs 2,03,534 crore in March 2018.

The Bharatiya Janata Party (BJP) government must talk about increase in bad loans at YES Bank in the last five years after Narendra Modi came to power, and should not try to divert public attention, said Congress chief spokesperson, Randeep Singh Surjewala here on Sunday.

Responding to the BJP allegations on YES Bank promoter Rana Kapoor's links with the Congress, Surjewala said the government must answer around Rs 2 trillion rise in YES Bank loan book from Rs 55,633 crore in March 2014 to Rs 2.41 trillion in March 2019, and not obfuscate the real issue of people's money sinking into a bad bank.

The relation between the BJP and Kapoor "is well-known", Surjewala said and added, why did the Prime Minister address a YES Bank-sponsored conference on March 6, despite "the RBI moratorium."

The Congress alleged the loans given by YES Bank rose 100 per cent in just two years after demonetisation from Rs 98,210 crore in March 2016 to Rs 2,03,534 crore in March 2018.

Also, the BJP government of Haryana deposited over Rs 1,000 crore in YES Bank just a month ago, knowing that it was sinking, he said and wondered if Devendra Fadnavis-led BJP government in Maharashtra also deposited money in the private bank.

"How does an M.F. Hussain painting of Rajiv Gandhi sold 10 years ago by Priyanka Gandhi to YES Bank owner Rana Kapoor & disclosed in her tax returns connect with unprecedented giving of loans of Rs 2,00,000 crore in 5 years of the Modi government," Surjewala said responding to a tweet by BJP leader Amit Malviya on the sale and purchase of Rajiv Gandhi's portrait by Hussain.

YES Bank fallout: Axis Trustee Services seeks clarity on AT-1 bondholders

RBI's draft reconstruction scheme for YES Bank suggested a permanent write-down of these bonds outstanding as of March 5.

YES Bank Share : Axis Trustee Services, the debenture trustees for YES Bank’s additional tier-1 (AT-1) bond, has written to the Reserve Bank (RBI) seeking clarity on the fate of the AT-1 bondholders. It also asked for appropriate treatment for them in the larger interest of debt capital markets and future bankfundraising.

RBI’s draft reconstruction scheme for YES Bank suggested a permanent write-down of these bonds outstanding as of March 5. According to the draft, the write-down is “in conformity with the extant regulations issued by the RBI based on the Basel framework”.

“We submit that such write-down of the AT-1 bonds, if given effect to, will be an arbitrary and discriminatory decision. While the Basel-III framework does legally permit write-off of the AT-1 bonds or conversion of such instruments into equity, such power ought not to be exercised in a manner in which preference is given to the common equity holders at the cost of retail as well as other investors who have directly or through mutual fund schemes and regulated financial institutions subscribed to the bonds,” Axis Trustee said.

In a letter to the RBI, Axis Trustee has presented the central bank with alternatives that can be looked at instead of writing down the AT-1 bonds. YES Bank has issued AT-1 bonds worth Rs 8,920 crore.

They have said, since the draft scheme of the RBI for reconstruction of YES Bank sees the matter as a going concern, the bank will always have the discretion to cancel or suspend coupon payments and delay the exercise of call option till the time the financials of the bank improves.

Also, they have said global best practices place equity as subordinate to AT-1 bonds but the RBI should consider the AT-1 bonds at par with equity if not senior. And, the AT-1 bonds can be converted into equity without affecting the size of the stake and value of investment of State Bank of India.

AT-1 bondholders have been holding on to the bonds for the past 3-4 years as long-term investors, the letter said. Moreover, in all the various scenarios in which the bonds can be converted into equity, the bondholders would be subjected to serious loss absorption in the range of 70-80 per cent of face value, however, that would be more equitable and acceptable than the proposed write down.

YES Bank crisis: Rana Kapoor in ED custody, faces Rs 4K-cr kickback probe

12 shell firms, 2 UK assets, 44 paintings under ED scanner; London-bound daughter stopped at Mumbai Airport; CBI books Kapoor and Wadhawan on charges of cheating.

YES Bank Crisis : The Enforcement Directorate (ED) has found that YES Bank co-founder Rana Kapoor and his family set up over a dozen shell firms that were allegedly used for receiving kickbacks to the tune of Rs 4,300 crore and invested in properties illegally.

The agency arrested Kapoor, 62, early Sunday morning in connection with a money-laundering probe — three days after the Reserve Bank put YES Bank under a 30-day moratorium and superseded its board. Kapoor was produced in a Mumbai sessions court, which remanded him in ED custody till March 11. The agency told the court that Kapoor’s custody was required to investigate the role of some companies run by his family members, and are directly and indirectly controlled by him.

“Kapoor obtained undue pecuniary advantage from DHFL (Dewan Housing Finance Corporation) in the matter of investments in the debenture of DHFL by YES Bank, through the companies held by his wife and daughters. It is also apprehended that Kapoor had misused his official position in several other transactions and obtained illegal kickbacks directly or indirectly through entities controlled by him and his family members,” the ED said in the remand to court, which was seen by the Business Standard.

“Prima facie, there appears to be generation and laundering of proceeds of crime to the tune of Rs 4,300 crore by the ‘accused’ persons under Prevention of Money Laundering Act (PMLA), 2002,” the ED said, adding further investigation into the money trail of the proceeds was under progress.

Sources said these firms used the kickback amounts to buy properties valued at Rs 2,000 crore. The current market value of the assets could be more than Rs 5,000 crore, said ED officials.

The agency is in possession of some crucial documents that show Kapoor bought two properties in the UK, and their valuation of which is underway. The probe agency also seized 44 paintings from Kapoor’s residence.

Roshini, Kapoor’s daughter, was stopped by immigration authorities from taking a Mumbai-London flight as a look-out-circular had been issued against Kapoor family members by the ED. The ED started its probe last Friday based on a first information report (FIR) filed by the Central Bureau of Investigation (CBI). The CBI in the FIR alleged Kapoor entered into a criminal conspiracy with DHFL promoters Kapil Wadhawan and others for extending financial assistance to DHFL by YES Bank in lieu of substantial undue benefits to himself and his family members through the companies held by them.

YES Bank fallout: SBI Cards may see some negative impact on listing

A plan to infuse capital in YES Bank where it continues to function as a separate entity just like LIC investing in IDBI Bank, would be a big positive for all the concerned stakeholders, analysts say.

Newsflow around State Bank of India (SBI) stepping in to rescue the cash-starved YES Bank has triggered a fresh sell-off in the state-owned bank's counter. While YES Bank tanked 80 per cent in intra-day deals, SBI lost over 10 per cent.

The developments have also cast a shadow on the listing of the bank's credit card arm - SBI Cards & Payment Services - which was expected to list at up to 50 per cent premium against the issue price.

ALSO READ: Taxpayers will be 'big casualty' if govt bails out Yes Bank: Macquarie

While analysts continue to remain bullish on SBI Cards from a long-term perspective given its healthy business outlook and huge penetration scope, the recent developments may have an impact on SBI Cards' listing. That said, they advise using the overhang to buy the stock for the long-term.

"If YES Bank gets amalagamated with SBI, just like Global Trust Bank (GTB) with Oriental Bank of Commerce (OBC) back in 2004, then it will be negative for both YES Bank shareholders as well as SBI shareholders. SBI then would have to take charge of all the liabilities of YES Bank. It will be negative for YES Bank shareholders as they would be left with nothing. However, it would be too early to jump the gun and conclude anything right now," explains Ambareesh Baliga, an independent market analyst.

On the other hand, a plan to infuse capital in YES Bank where it continues to function as a separate entity just like LIC investing in IDBI Bank, would be a big positive for all the concerned stakeholders, the analyst says.

MFs urge investors to de-link YES Bank account and scout for alternatives

Move aimed to avoid funds getting blocked in account post-redemption request.

Mutual funds, distribution platforms and individual advisors have asked investors to immediately look at alternative bank accounts for their investment mandate with a moratorium coming into force on YES Bank.

Nilesh Shah, managing director of Kotak MF, said in a social media post that if clients wanted to change their redemption bank account mandate from YES Bank to any other bank they could send a request. "We shall process the request for tomorrow's redemption so that their money isn't blocked."

Zerodha -- which runs the distribution platform Coin -- has also urged investors to look at other accounts.

"We have cancelled all fund withdrawal requests made by clients to their YES bank accounts so that the money doesn’t get blocked. Please change, if your primary bank account is YES, to any other and withdraw the funds," Nithin Kamath, founder and chief executive officer of Zerodha said in a post.

"We have called up our clients and told them to immediately change the bank account mandates," said Bharat Bagla, an individual MF distributor.

Further some platforms are also taking steps to restrict fresh flows to the schemes of YES MF, given the uncertainty around the fate of the asset management company after the bank is amalgamated into another bank or entity, which is likely to have its own MF subsidiary.

"We have discontinued all fresh investments in YES AMC with immediate effect. Existing investors in YES AMC schemes can continue to send requests for redemptions," Paytm Money said.

On Thursday night, YES Bank was placed under moratorium by RBI with the withdrawal limit capped at Rs 50,000 for account holders.

RBI's move to take control of YES Bank puts Mutual Funds on the edge

As many as 32 mutual fund schemes have exposure to bank's AT-1 bonds.

The Reserve Bank of India’s (RBI) decision to takeover YES Bank has put mutual funds (MFs) in lurch, which are bracing for sharp mark-to-market hits on their exposure to the additional tier-I (AT-1) bonds of YES Bank. These bonds carry higher risks compared to other debt securities.

As many as 32 MF schemes are exposed to YES Bank debt with total exposure of close to Rs 2,800 crore (as of January 31, 2020 data).

According to industry participants, MFs are expecting rating downgrades and repricing of the bonds given the higher risks linked with the AT-1 bonds.

“Valuation agencies have already taken a markdown of 35 per cent. These bonds carry equity-like characteristics, and may not get treated at par with other types of debt securities,” said a fund manager, requesting anonymity.

Further, AT-1 bonds have some loss-absorption features, which can get triggered if the bank’s capital falls below certain thresholds.

On Thursday night, Nippon India MF marked down its exposure to YES Bank’s AT-1 bonds to zero after RBI’s move.

The fund house in its note pointed out that as per information memorandum (IM) of AT-1 bonds, in case there is reconstitution or amalgamation of bank under section 45 of Banking Regulation Act, the bank will be deemed as non-viable and trigger for write-down or conversion of AT-1 bonds will be activated.

However, the fund house was not yet able to side-pocket the exposure as the option can only be exercised once the security is downgraded to below-investment grade.

On Friday morning, rating agencies were yet to take any action on grading of the bonds and the instrument remained at investment grade of BBB-minus.

Experts say the bank’s decision on Thursday not to exercise its call option on these perpetual bonds can also be considered as a material event by the rating agency and be grounds for a rating action.

SBI board approves exploring 'investment opportunity' in YES Bank

A salvage plan including SBI and Life Insurance Corporation of India was being talked about and a declaration right now be made soon

Yes Bank Share : The State Bank of India board has given on a fundamental level endorsement to consider a "venture opportunity" in YES Bank. In a late night proclamation on Thursday, SBI, be that as it may, said no choice had at this point been taken to get stake in the bank.

Exceptionally put sources showed a salvage plan including SBI and Life Insurance Corporation of India (LIC) was being talked about and a declaration right now be made soon.

While the better subtleties of the arrangement are being worked out, it is foreseen that both SBI and LIC together will take a 51 percent stake in the bank, with a one-year lock-in period.

LIC as of now possesses 51 percent in IDBI Bank, which it obtained in 2018 to inject capital into the upset loan specialist.

Sources said both the state-possessed associations would hold the offers as speculation. LIC as of now possesses 8 percent in the private loan specialist.

The sources said YES Bank needed to practice its call choice on ceaseless bonds or extra level 1 (AT1) obligations of Rs 80 crore on March 5. "The bank hasn't practiced its call choice," said a source. Inability to have met the bond commitment is said to be the trigger for the purposeful activity.

As of late, CARE Ratings downsized YES Bank's appraising on bonds worth Rs 21,016 crore to acknowledge watch for negative ramifications. These bonds were at that point put under negative rating.

On the salvage plan, specialists said the need is rebuild the asset report. "Resources should be brought down to feasible worth and that overview will demonstrate how a lot of capital is required for the bank," said a financial advisor.

All may not be lost for YES Bank but insiders say its recovery to be slow

It will rely upon the obtaining bank or money related foundation's ability to hold the benefits till the market improves and sell them later to recuperate sizeable lump of the credits.

YES Bank Crisis : All may not be lost for emergency hit YES Bank with banking industry insiders calling attention to that the bank has rock solid insurance against advances.

It will, thusly, rely upon the procuring bank or monetary establishment's ability to hold the benefits till the market improves and sell them later to recuperate sizeable lump of the credits.

For example, if security is a private structure, it may not bring great cost in a discouraged market.

Yet, given that a portion of the enormous budgetary foundations, for example, IL&FS and DHFL have fell as of late, the market may not react well to YES Bank.


"This is the explanation we expect recovery of YES Bank to be extremely moderate," a Mumbai-based bank official said.
Indeed Bank had before put forth all potential attempts to raise development capital however hopelessly fizzled. Since the main private bank is very nearly breakdown, the administration has bumped the SBI to frame a consortium and salvage the bank.


The RBI, as controller, has come vigorously and finding a way to guarantee the bank makes a turnaround.
The circumstance at the YES Bank has arrived at disturbing level constraining the RBI to supplant its board. A breaking point has additionally been forced on withdrawal of stores in overabundance of Rs 50,000.


There is a developing recognition in the market that a sizeable piece of YES Bank's credits have transformed into non-performing resources (NPAs) which are not recoverable. This will prompt disintegration of its advantages yet given that the bank, before, took substantial guarantee for loaning, the market anticipates that the gaining element should recoup some portion of the credits by selling the benefits.

"Advances are unquestionably transforming into NPAs however does the basic security have showcase esteem and to what degree, would they be able to be recouped? What one sees is that bank has just made arrangements for awful credits however the bank has the option to sell the advantages sold with it," another financial industry official said.
The administration is found out to have requested that the SBI lead a consortium to purchase stake in YES Bank. This signals the legislature won't permit the bank to come up short.

YES Bank in talks with mutual funds for raising up to $500 million

If the private bank is able to raise funds in this round, it would get some breathing space.

YES Bank has approached domestic asset management companies (mutual funds) for raising fresh equity capital worth $300-$500 million. This comes amid a slew of rating downgrades and stress on its loan book.

If the private bank is able to raise funds in this round, it would get some breathing space. The lender, however, will still have to work to raise more funds to address concerns. The bank has been aiming to raise a total of $2 billion.

The private lender has been struggling to raise capital for months. It also had to postpone its December 2019 quarter results as the fundraising process consumed most of its top management’s time.

Investment bankers associated with the fundraising exercise said the bank has approached domestic mutual funds for issuing equity shares.

“While there is definite interest in the offering, firm commitments have not been made yet. The bank is in dialogue with mutual funds which had participated in the last equity raising round in 2019,” said one of the bankers.

In August 2019, YES Bank had raised Rs 1,930 crore through the qualified institution placement (QIP) route.

Fund managers have conveyed reservations over putting money into instruments which have a lock-in period. However, discussions are on to find a solution. An email sent to the bank to know the status of its fundraising plans did not get response till the time of going to press.

There is also a plan to issue equity shares on a rights basis. For participating in a rights issue, an investor must be a shareholder, which is why some existing shareholders (mutual funds) are being approached, the banker said. The final investor approvals are expected over the next three days. These investors may exit once a deal to sell a controlling stake in the bank is struck.

On February 12, YES Bank had delayed announcement of its December quarter results as it was in talks with potential investors, including J C Flowers, for raising equity capital. It received non-binding expressions of interest from several investors, including J C Flowers and Tilden Park Capital Management.

Last month, ICRA downgraded the bank’s tier-I and tier-II bonds from “A-” to “BBB+” due to continued delay in capital raising by the lender.