Few options to raise funds, Yes Bank’s caught in a bind

A sharp rise in slippages, weak capital position and soft growth have limited Yes Bank’s options to raise money and forced analysts to take a relook at their guidance for private bank, prompting another sell-off in the bank’s stock losing close to 13 per cent of its value to end at Rs 86 per share in Thursday’s trade.

Added to the weak profitability was the fall in the bank’s low-cost current and savings account deposits (CASA) in the three months ended June 2019, which could further dent Yes Bank’s margins and impact earnings in the future. Yes Bank’s CASA deposits fell 9.5 per cent between March and June to 30 per cent of total deposits from 33 per cent, results released by the bank showed.

“The sharp fall in the bank shares means that options like QIP will not work because for the bank to raise $1 billion, which the management targets, it will require close to 30 per cent equity dilution, much more than the 10 per cent ceiling set by the bank. The best option for the bank in this scenario is raising capital from the private equity funds and issuing some warrants which can be converted later,” said Rohan Mandora, analyst at Equirus Securities.

Analysts are particularly worried about the bank’s asset quality as total slippages doubled to Rs 6,232 crore in the quarter ended June versus and as much as Rs 2,100 crore came from the loans rated BB and below, which were outside the bank’s declared watch list of Rs 10,000 crore.


Macquarie analyst Suresh Ganapathy rechristened the bank as ‘No Bank’ in a note on Thursday, raising doubts on the bank management’s ability to stick to its word.

“The real challenge here is to ascertain the quality of the book and enormous trust deficit created by the management…How can anyone believe what is being saidRs I am in shock that when you disclose a watch list, you don’t include the likes of Dewan (DHFL) and R-ADAG group finance firms only because, technically, they were rated investment grade? Is it not your responsibility to assess the entire book and then come out with your estimateRs Last quarter, the management said that we have gone through with a fine-tooth comb and assessed the book…What does it speak about your risk-assessment capabilities? ” Ganapathy asked.

“We expect further pain to accrue and have built-in gross NPA more than 8 per cent (5 per cent currently), effective credit cost of more than 2.5 per cent (management guidance of 1.25 per cent), $850 million capital raising over two years, 10-13 per cent growth and 7-10 per cent dip in core fee income,” said Edelweiss Securities in a note.