Yes Bank Limited needs to raise capital quickly to support its credit growth and stay compliant as per regulatory norms. The bank’s asset quality has deteriorated sharply and it reported slippages in excess of Rs 12,000 crore. On 5 March 2020, the Reserve Bank of India (RBI) has taken control of the bank which had an excessive amount of bad loans in an attempt to avoid the collapse of the bank, later reconstructed the board and named Prashant Kumar former Chief financial officer of SBI as new MD & CEO at Yes bank.
Let’s know what had happened with YES Bank
Ailing private sector lender YES Bank will raise up to Rs 5,000 crore as equity capital in the second round to meet regulatory requirements and support the business. The board, at its meeting on Thursday, approved raising of funds for an additional amount aggregating up to Rs 5,000 crore in one or more tranches, by issuing securities, the bank informed the exchange. Its shares closed 10.27 percent lower at Rs 26.65 per share on the BSE.
The bank has kept options open to use routes like qualified institutional placement, public issue, rights issue, global depository receipts, American depository receipts, and foreign currency convertible bonds or any other permissible mode, it added.
Impact on Customers
1. Amount deducted towards loan and premium payments will be impacted if it is higher than Rs. 50,000.
2. It will have an impact on customers whose salary account is linked to Yes Bank
3. The possibility of renewing or granting loans and making investments by the bank will reduce.
#JUSTIN | RBI governor has categorically stated that their deposits are safe. This assurance is a very, very positive thing: YES Bank administrator Prashant Kumar
— Business Standard (@bsindia) March 17, 2020
“There is no need for Yes Bank depositors to worry about their money, it is safe,” assures the RBI Guv. I for one never worried about deposits in any scheduled commercial bank in India. But for those who did, this unequivocal statement should clear all worries. @DasShaktikanta
— Latha Venkatesh (@latha_venkatesh) March 16, 2020
Take of the CEO
YES Bank Chief Executive Officer (CEO) Ravneet Gill has reportedly said that the private sector lender will soon complete its capital raising process. Gill assured that it is just a matter of time before we have capital.”It is a question of time before we have capital,” Yes Bank CEO Ravneet Gill told The Economic Times.
The new board
Yes Bank said the board of the bank has been reconstituted with effect from March 26, 2020 with a total of eight members including Kumar. The other board members include Sunil Mehta as the non- executive chairman, who also held the same position with PNB in the past; Mahesh Krishnamurti and Atul Bheda as non-executive directors; R Gandhi (former RBI deputy governor) as additional director appointed by the banking regulator and Ananth Narayan Gopalakrishnan as additional director appointed by RBI. Partha Pratim Sengupta and SwaminathanJanakiraman as directors nominated by SBI on the Yes Bank board
#ETNOWExclusive | A day after @RBI allayed fears on @YESBANK, the private bank’s new boss Prashant Kumar, said all branches are adequately funded and there is nothing to worry. Tune in!@uttkarsh311090 #yesbankcrises pic.twitter.com/jzQoH3APcP
— ET NOW (@ETNOWlive) March 17, 2020
Other challenges
1. It went on a loaning spree with advances rising by 334% between Financial Year 2014 and 2019
2. Many borrowers started defaultingThe bank’s gross non-performing asset percentage, that is the percentage of loans overdue for more than 90 days, zoomed to 7.39% as of September 2019, the highest among comparable banks.
3. While bad loans piled up, the bank did not make enough provisions in its profits. Its provisions were the lowest among comparable banks
4. Customers withdrew large amounts, resulting in the credit-deposit ratio crossing 100% in 2018-19. That is, it lent more than it received.
5. Loan spree and high NPA meant poor profitability, gauged by Yes Bank’s sinking Return on Assets
6. The bank’s stock price fell steadily in the past year
7. The bank has also experienced serious governance issues and practices in the recent years which have led to steady decline of the bank, said Reserve Bank of India.
Other Concerns
It reconstituted eight-member board held a nine-hour-long meeting via videoconference. Besides enabling resolution for capital raising, the directors dwelled on employee concerns and work being done by them in trying times, said banking sources.The bank is a board-driven company. Earlier, it was run by administrator Prashant Kumar under the reconstruction scheme, which came into effect on March 5. Kumar is now the managing director and chief executive officer of the bank.While the bank had prepared the broad contours of a strategic plan, the COVID-19 outbreak has added new challenges. The management will begin a dialogue with investment bankers to chalk out a plan for raising fresh capital and assess market appetite for shares from the bank, said sources.
