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.

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.

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.

YES Bank to delay Dec-quarter results amid talks to raise capital

The bank and its financial advisors are in discussions with investors on commercial terms. The investments, including pricing and size of the stake to be acquired, are all subject to regulatory approve.

Market News : YES Bank will delay the announcement of its December quarter (Q3) results as it is in talks with potential investors, including J.C. Flowers and Silver Point Capital, for raising equity capital.

In a filing to the BSE, the lender said it had received non-binding expressions of interest (EoIs) from several investors including J.C. Flowers & Co, Tilden Park Capital Management, OHA (UK) LLP (part of Oak Hill Advisors), and Silver Point Capital.

The bank and its financial advisors are in discussions with these investors on commercial terms. The investments, including pricing and size of the stake to be acquired, are all subject to regulatory approval.

The current capital raising process is engaging the bank’s attention and hence it will publish its results for Q3 and the nine months ended December 31, on or before March 14, 2020. The bank added that this exceeds the 45-day period from the end of the relevant quarter to announce results, as stipulated by the Securities and Exchange Board of India. YES Bank shares closed 4.5 per cent lower at ~35.2 per share on the BSE. India Ratings has downgraded YES Bank’s long-term issuer rating to ‘A-’ from ‘A’, on account of the continued delay and inconclusive quantum of the anticipated equity infusion. It remains on Rating Watch Negative (RWN). This could adversely impact the bank’s franchise and potentially create challenges on asset and liability side, the rating agency said in a statement.

It has sizable foreign currency liabilities and institutional deposits. The required capital infusion is critical for providing sufficient cushion from the possible credit cost impact due to the stressed asset pool on regulatory capital requirement, in the short- and medium-term. The capital is also crucial for serving its customers adequately, said India Ratings.

YES Bank’s liquidity position seemed adequate as of September 2019 (liquidity coverage ratio of 114 per cent).

However, in the absence of any swift capital raise, the bank’s ability to manage its asset and liability maturities could get tested further. The lender continues to remain in discussions with potential investors. However, raising sizeable capital in the near term could be challenging and could require various approvals.

YES Bank share sale: Erwin Singh Braich, family offices may not be included

Bank plans to raise $1.75 billion; in talks with five European institutions: Ravneet Gill.

Market News : YES Bank is likely to skip issuing shares to family offices in favour of institutional investors in the current round of its preferential issue, where the bank plans to raise $1.75 billion, its managing director and chief executive officer, Ravneet Gill, has said.

This means Erwin Singh Braich, GMR Group, and Aditya Birla Family Office, which had all put in bids, may not get a piece in the bank's stake sale.

Denying reports of a forced merger being thrust upon the bank, he said he was confident of raising the target funds soon.

“Large European financial institutions regulated by the Financial Conduct Authority have shown an interest in the bank,” Gill told Business Standard in an interview. "Since the talks are at an advanced stage, the bank will reveal the names of these investors once it enters into a binding agreement with them," he added.

It is understood that YES Bank has received an interest from four to five financial institutions, and one of them could take as much as 10 per cent in the bank. Others are expected to pick up a 4-5 per cent stake each.

Gill said that since these investors are well-governed and established names, they should pass the ‘fit and proper’ test of the Reserve Bank of India.

"When these bids become binding and once we disclose the names, then nobody would have any concerns with regard to the quality of investors or their ability to put in the money. So, it will effectively put a lid on the issue once and for all," Gill said.

Braich had bid for $1.2 billion in the proposed $2-billion stake sale, while the Citax group evinced interest to the tune of $500 million.

Other family offices were to put in about $100 million, according to a YES Bank release.

Gill said, “As far as Indian investors and family offices are concerned, we have told them that for this capital raise, we have to go for the institutional route.”

He also feels that the $500 million committed by London-based Citax Holdings and Citax Investment Group should also pass the regulatory muster. “We will not trip on regulatory issues,” he said.

Crisis-hit Yes Bank poised to reveal crucial fund-raising details

Yes Bank Ltd. is expected to name the investors and the amount of money they will contribute after its board signs off on the plan at a meeting on Friday.

An Indian lender that’s creaking under the weight of bad loans and exposure to the nation’s shadow-banking crisis is poised to release details of a crucial fund-raising plan.
Yes Bank Ltd. is expected to name the investors and the amount of money they will contribute after its board signs off on the plan at a meeting on Friday. Then it will be up to the Reserve Bank of India to consider approving the arrangement.

India’s fourth-largest private-sector lender aims to raise about $1.2 billion in capital and says it has received offers from bidders including an unnamed North American family office. Chief Executive Officer Ravneet Gill, who is about nine months in the role, has said raising the money will keep the bank running for the next two years.

RBI approval is required for stake purchases in Indian banks of more than 5 per cent. Any non-financial entity can buy up to 10 per cent of a lender, and for a financial entity the cap is 15 per cen. In general the central bank is reluctant to allow larger stakes, though there’s a provision to allow a single investor to pick up 40 per cent or more under special circumstances.

A notable such exception came three years ago when Canada’s Fairfax Financial Holdings Ltd. was allowed to buy a 51 per cent stake in CSB Bank Ltd., then known as Catholic Syrian Bank Ltd. That marked the first time the central bank let a foreign firm take a majority interest in a local lender.

Yes Bank shares have more than doubled since Oct. 1, the best performance on the benchmark Sensex, giving it a market value of about $2.5 billion. The rally has pared its decline this year to about 61 per cent.

With exposure to several troubled shadow banks, real estate firms and stressed companies, Yes Bank’s bad loans have risen sharply, forcing it to step up provisioning and eroding its capital. The lender’s core equity capital is 8.70 per cent, barely above the regulatory minimum of about 8 per cent.

Gill is trying to clean up the bank after the RBI forced his predecessor, co-founder Rana Kapoor, to step down following a dispute over the disclosure of bad loans. With 314 billion rupees ($4.4 billion) of exposure to junk-rated companies, the bank might need more capital to set aside for defaults in the future.

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