“As per the draft plan proposed to the government by RBI, there will be six banks in the SBI-led consortium. Since PSU banks are themselves short of capital, all the five other banks in the consortium are likely to be private sector lenders including ICICI Bank Ltd, HDFC Bank Ltd, Kotak Mahindra Bank Ltd., Axis Bank Ltd. and IndusInd Bank Ltd. RBI cannot force these banks, but it can urge the private lenders to put in money to help Yes Bank stay afloat," said a person with direct knowledge of the draft plan.
The capital infusion will be via a mix of pure equity and convertibles. But, since Yes Bank's market cap has fallen drastically, a capital-raising of Rs12,000-14,000 crore at one go via equity sale may completely wipe out the small shareholders. Therefore the plan is to pump capital in tranches. This capital infusion will be through preferential allotments," said the first person.
In an exchange filing SBI said it will abide by the timelines under Sebi’s listing norms in disclosing the developments, if any in the matter to stock exchanges.
Yes Bank said in an exchange filing that as on date, the bank has not received any such communication (regrading stake purchase by SBI) from RBI or any other the government or regulatory authorities or from the SBI and we are unaware of any such decision.
“The bank in the usual and ordinary course of its business continues to explore various means of raising capital/ funds through issuance of securities to diverse set of investors to meet its business/ regulatory requirements, subject to compliance with prescribed procedures and receipt of statutory/ regulatory approvals," said Yes Bank.
On Thursday morning, Yes Bank shares zoomed a whopping 29.35% to hit an intraday high of Rs37.90 apiece on BSE Ltd. immediately after a report by Bloomberg LP suggested a capital infusion by a SBI-led consortium.
A J.P. Morgan report termed this rally “unjustified" and cut Yes Bank's target price to a bare Rs1 per share.
"Yes Bank’s quasi sovereign bailout (by SBI/LIC) we believe is a bond holder / depositor bailout and not an equity one...The new capital will likely come in at a steep discount to current share price, as forced “bailout" investors will likely want a large cut for equity holders and it remains to be seen if AT1 (additional tier 1) at the bank will be called for dilution, as such a move could have implications for future similar issuances by private banks," said the JP Morgan report.
Taking a conservative view of the stressed pool at Yes Bank (Rs450- 500 billion), we believe the net worth (Rs270 billion) can buffer most of the losses realized from the stress book at the bank. However, capital will still be required to recapitalize it, which in our view could be $2.5-3 billion if AT1 is not converted.
"Forced bailout" investors especially if part government-owned will likely need equity to be heavily marked down, resulting in almost complete erosion of book value per share. Conversion of AT1 would need to be monitored as it could have implications for pricing of future such issuances," said the report.
The stressed pool at the bank is largely comprised of four key accounts – Essel, ADAG & now Vodafone Idea besides a large commercial real estate book.
J P Morgan noted that CET1 at the bank is Rs276 billion and AT1 (which can be called in for dilution) is Rs88 billion. "Together these are sufficient to absorb the haircut, but cannot help fully recapitalize the bank. We note that this process, however, could get a boost if the bank were able to show recoveries from its stressed pool, especially ADAG where exposure is $1.8-$2 billion," added the JP Morgan report.
The first person said that the central bank’s immediate plan is to test the effect of the first capital infusion and help Yes Bank at least stay compliant with capital adequacy norms, build buffers against loan losses and carry on its basic banking businesses for the moment.
“If the first tranche of capital infusion works, the next infusion will be done within a timeline to be decided by the consortium in consultation with RBI. If the situation improves and the bank's stock price strengthens RBI may allow a one-time exception on bank's shareholding norms and allow the SBI-led consortium to buy up to 51% in Yes Bank for providing the lender enough capital," said the first person.
According to the extant norms, a single entity cannot hold more than 4.99% in a bank without RBI’s special approval. Since a 51% stake sale to the bank consortium will result in a holding of more than 5% each in Yes Bank, a special dispensation by RBI may be required for the proposed capital infusion.
As per the plan of RBI following the capital infusion by the consortium, Yes Bank will do a fresh preferential allotment to sell shares and convertibles to private equity investors and foreign family offices to mop up adequate capital, said the first person.
As of the September quarter, Yes Bank’s tier I capital adequacy ratio was at 11.5% against the regulatory requirement of 8.875%. Its common equity tier 1 capital was at 8.7%, marginally above the regulatory requirement of 7.375%.
If RBI’s latest plan fructifies, it will act as a lifeline for Yes Bank which has been desperately scouting for capital since August end of 2019. Yes Bank, in November, said its board has approved a plan to raise $2 billion.
However, after raising $270 million in August, Yes Bank has failed to raise any capital. And, every time Yes Bank has put out notes on fund raising, stating that several large global investors have evinced interest to put in capital, the bank’s stock has shot up. Last month, Yes Bank said it has received non-binding offers from foreign investors including JC Flowers & Co., Tilden Capital, Oak Hill Advisors and Silver Point Capital. In November, the bank’s board had disclosed several other names.
As a part of latest rescue plan, the government has also asked its savior-of-last-resort Life Insurance Corp. of India or LIC to put in some capital into Yes Bank.
LIC currently holds 8.06% in Yes Bank. “This is a direct proposal by the government. LIC, along with a few other existing shareholders may separately subscribe to a rights issue by Yes Bank to provide some more capital to Yes Bank," added the first person.
Mint was the first to report that the government and RBI were considering all options, including an interim bailout of Yes Bank, in case the proposed fundraising was to get more delayed.
The government and RBI are of the view that Yes Bank's collapse can have a domino effect on interlinked financial institutions and impair growth for the banking sector.
In January, even SBI's chairman Rajnish Kumar had said Yes Bank "will not be allowed to fail" and that “some solutions will emerge" to steady the private lender. This indicated that something was in the works.
Yes Bank's share value has eroded 84.50% in the past one year due to concerns over its capital crisis and worsening asset quality leading to higher provisioning requirements.
A Bloomberg report on Thursday said, Yes Bank’s total exposure to shadow lenders and developers -- both caught up in a funding crunch since late 2018 -- was 11.5% as of September end, filings show.
The bank had in February said its discussion with potential investors has led to a delay in its reporting of December quarter results till 14 March.