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Business News/ Companies / News/  RBI readies a rescue plan if Yes Bank fails to raise funds

RBI readies a rescue plan if Yes Bank fails to raise funds

It has become necessary for RBI to consider a rescue plan for Yes Bank as its collapse can have a domino effect on interlinked financial institutions and impair growth
  • Yes Bank is making a second attempt to raise funds since its qualified institutional placement in Aug
  • Yes Bank is awaiting a capital infusion of $2 billion (Photo: Mint)Premium
    Yes Bank is awaiting a capital infusion of $2 billion (Photo: Mint)

    Mumbai: The government and the Reserve Bank of India (RBI) are considering all options, including an interim bailout of Yes Bank Ltd, in case a proposed $2 billion capital infusion into the private lender gets further delayed, two people aware of the development said.

    The possible intervention could include a sale of pooled assets to public sector banks or, as a last resort, sale of a small stake to a state-run bank to pave the way for further capital raising, the people said on condition of anonymity.

    A backup rescue plan for Yes Bank, which is teetering under the weight of bad loans, has become necessary for RBI and the government to consider as the collapse of a bank can have a domino effect on interlinked financial institutions and impair economic growth.

    While Yes Bank is hopeful it will be able to tie up the funds by as early as 14 March, there remains a possibility that a large public sector bank may be asked to step in temporarily if negotiations with investors overshoot the deadline, the people said.

    Even if that happens, it will likely be for the purchase of pooled assets from Yes Bank, one of the two people said. The person added that a bailout at this stage has become important for Yes Bank as the discussions with investors for raising capital are still on and no final offer has been made.

    At least three investors, JC Flowers, Cerberus Capital Management and Hinduja Group, are inspecting the books of Yes Bank for a possible investment. However, given the time constraints and the large size of the fund infusion, investors may request for more time.

    “The deadline of 14 March seems overly optimistic at the moment even though the potential investors remain engaged," said the person cited earlier.

    “However, it is possible that Yes Bank could close a smaller round by 14 March while continuing its conversations with investors," the person said. The bank had earlier said it was delaying its December quarter financial results to on or before 14 March as it was “deeply engaged" in the capital-raising process. This is the bank’s second attempt at raising money since its qualified institutional placement in August. “The bank cannot afford any further delay as a lot is at stake. Since it has delayed its financial results citing capital raising as the reason, investors will be keenly watching for adherence to the deadline," the person said.

    Bloomberg reported on 5 February that Yes Bank has hired Cantor Fitzgerald LP, IDFC Securities Ltd and Ambit Pvt. Ltd to help raise as much as $2 billion.

    A top public sector banker said on condition of anonymity that such a transaction has to be routed either through the government or RBI with prior approval. “Public sector banks are in the midst of cleaning their own books and would like to stay away from such purchases," the banker said.

    A spokesperson for Yes Bank said that Mint’s query on the possible delay in raising capital and the possible intervention of a state-owned bank was “speculative and factually incorrect". Emails sent to JC Flowers, RBI and the finance ministry remained unanswered till the time of going to press.

    On 12 February, Yes Bank told stock exchanges that it had received non-binding expressions of interest from at least four investors and the capital-raising effort would lead to a delay in publishing its December quarter results to on or before 14 March. The lender named JC Flowers, Tilden Park Capital Management LP, OHA (UK) LLP (part of Oak Hill Advisors) and Silver Point Capital as potential investors.

    Yes Bank’s non-performing assets have swelled in the past few quarters. The bank not only needs capital for setting aside money to cover bad loans, but also to stay compliant with RBI norms in the quarters ahead.

    At the end of September, Yes Bank’s tier I capital adequacy ratio stood at 11.5% against the regulatory requirement of 8.875%. Its common equity tier 1 capital ratio stood at 8.7%, marginally above the regulatory requirement of 7.375%.

    On 16 January, Moody’s downgraded Yes Bank’s baseline credit assessment (BCA) and adjusted BCA to caa2 from b3. Moody’s BCA has three main components: a macro profile, financial factors and qualitative factors. Moody’s said that because the viability of the bank in the absence of a large capital injection is in question, it had downgraded the bank’s stand-alone credit profile or its BCA to caa2 from b3.

    “Yes Bank is in discussions with a number of investors to raise new equity capital, which would be credit positive if executed successfully. If the bank successfully recapitalizes and repairs and cleans its balance sheet, its ratings could stabilize or face upward pressure," Moody’s said.

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    Shayan Ghosh
    Shayan Ghosh is a national editor at Mint reporting on traditional banks and shadow banks. He has over 12 years of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
    Catch all the Corporate news and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
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    Published: 01 Mar 2020, 11:50 PM IST
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