2 Who will say 'Yes' to YES Bank?

But the turn of events over the last few weeks is steadily chipping away at market confidence in YES Bank .

YES Bank's balance sheet woes are unlikely to end even with the expected Rs 10,000 crore of capital coming in. This is because fresh corporate slippages in the third and fourth quarters are likely to put significant pressure on bank’s capital, at least three analysts who have been tracking the bank said.

All three requested anonymity.

With the market cap of the bank is just above Rs 9,000 crore, and no solid investor in sight yet, a merger appears to be only way out for the Reserve Bank of India (RBI) to protect the interests of depositors in YES Bank.

"If the promised capital is not coming in soon, merging the bank will be the only feasible option," said one of the analysts working with a Mumbai-based brokerage.

More warning signals

On Friday, global rating agency Moody's Investors Service cracked the whip on YES Bank, placing the lender’s long-term foreign currency issuer rating of B2 under review, with the direction uncertain. The agency said "the viability of the bank absent a large capital injection is in question".

YES Bank, which had earlier guided the markets with a Rs 14,000 crore fund raising plan, last week said it will raise Rs 10,000 crore and has called an EGM on February 7 to seek shareholders’ nod to raise its authorised capital.

"Previous guidance to markets on fund raising has disappointed investors. So one needs to wait and see whether they are able to do it this time," said a second analyst. "The bigger question is even if they do, how long that money will be enough to keep the bank going given the size of the problem they are in," the analyst said.

Weak financials

The big challenge for the bank is to maintain the Tier-I capital adequacy at the minimum 8 percent level by March. Going by the second quarter numbers, YES Bank has a common equity Tier-I ratio of 8.7 percent and retaining this looks challenging on account of likely fresh slippages and the provisions those will entail.

"The bank's solvency profile remains weak with net NPA/CET of 36 percent as on September 30, 2019 (27% as on June 30, 2019) apart from the stressed exposures in the investment book. With the delay in capital raise and a likely increase in NPAs, the capital and solvency profile are expected to weaken further. Hence, the need to raise capital is immediate," rating agency Icra said on 19 December.

DHFL, Suzlon and Altico are among companies that are likely to add to the stressed portfolio of banks in the third quarter, including YES bank, analysts said. Under RBI norms, banks need to set aside money against doubtful assets. The quantum of such provisions depend on how bad is the asset.

YES bank is a corporate lender with this segment constituting about 62 percent of the total loan book and retail loans just about 20 percent.

Uncertainty looms

At least three analysts Moneycontrol spoke to said they had advised their clients to be cautious on investing in the share. "There is no clarity on capital raising. We hear that there have been several meetings with investors and management," said a third analyst in Mumbai.

To sell 5 percent above stake to a single investor, the bank will require the RBI’s go ahead. Earlier, the bank had rejected the bid of Erwin Singh Braich, backed by the Hong Kong-based SPGP Holdings, to invest $ 1.2 billion but said it will continue considering Citax Holdings and Citax Investment Group.

Who can save Yes?

YES Bank, once the favourite of Dalal Street, began facing issues with the exit of its co-founder Rana Kapoor, asset quality divergence, delays in fund raising and alleged corporate governance issues. The new CEO Ravneet Gill is in the midst of efforts to find an investor.

Just last week, YES Bank's independent director and head of audit committee, Uttam Prakash Agarwal, quit in a dramatic manner alleging serious corporate governance issues, just ahead of a board meet that was scheduled to review his 'fit and proper' status. Since then, the bank has assured investors that it will tide over the crisis phase raising capital. But markets have given a thumbs down hammering the stock by 40 percent since the start of December.

Analysts are not too hopeful of YES Bank managing to come out of the crisis on its own.

"Every passing day, the crisis gets worsened as the market capitalisation takes a beating, fresh slippages arise and institutional investors on way out, leaving only retail investors and HNIs. The possible solution looks like a merger by a deep pocketed contender," said the third analyst.

Forced mergers by RBI aren't new in India. Oriental Bank of Commerce's takeover of Global Trust Bank is case in point. But even some of the mergers that appeared to be business decisions are known to have been at the prodding of the RBI.

Given the size of the problems at YES Bank, the list of banks which can easily absorb the loan book is a short one. In the meantime, the quest for investor(s) continues.