Yes Bank shares fell as much as 5% today (Reuters)
Yes Bank shares fell as much as 5% today (Reuters)

Yes Bank: RBI night lamp may ensure stability, but raising funds a challenge

  • Former RBI deputy governor R. Gandhi’s entry has brought back questions on the lending practices at the bank
  • It is rare for the RBI to make a special board appointment

Mumbai: Only recently, troubled Yes Bank Ltd got a new chief to throw sunlight on its books. But it seems a night vigil was also necessary to police the lender. After all, Yes Bank is a systemically important bank and has a huge pile of deposits it needs to safeguard.

Enter R. Gandhi, former deputy governor of the Reserve Bank of India (RBI), as an additional director on the bank’s board.

It is rare for the banking regulator to make a special board appointment. In the past few instances of such appointments, the banks in question were small.

To make matters worse, RBI has been cryptic about the reasons for such an appointment. However, the banking law clearly states that the regulator has the right to appoint additional directors when it feels it’s necessary under public interest or in the interest of the bank or its depositors.

Gandhi’s entry has brought back questions on the lending practices at the bank. What’s more, it has thrown a spanner into Yes Bank’s capital-raising plans.

“There is a concern among investors that all the troubled assets at the bank have not been laid bare. Till investors are sure of the bank’s processes, I think it would be difficult to get a good response in their capital raising plans," said Suresh Ganapathy, head of financial research at Macquarie Capital Securities Ltd.

Mumbai: Only recently, troubled Yes Bank Ltd got a new chief to throw sunlight on its books. But it seems a night vigil was also necessary to police the lender. After all, Yes Bank is a systemically important bank and has a huge pile of deposits it needs to safeguard.

Enter R. Gandhi, former deputy governor of the Reserve Bank of India (RBI), as an additional director on the bank’s board.

It is rare for the banking regulator to make a special board appointment. In the past few instances of such appointments, the banks in question were small.

To make matters worse, RBI has been cryptic about the reasons for such an appointment. However, the banking law clearly states that the regulator has the right to appoint additional directors when it feels it’s necessary under public interest or in the interest of the bank or its depositors.

Gandhi’s entry has brought back questions on the lending practices at the bank. What’s more, it has thrown a spanner into Yes Bank’s capital-raising plans.

“There is a concern among investors that all the troubled assets at the bank have not been laid bare. Till investors are sure of the bank’s processes, I think it would be difficult to get a good response in their capital raising plans," said Suresh Ganapathy, head of financial research at Macquarie Capital Securities Ltd.


The success of the capital raising was questioned even earlier. After all, with a common equity Tier-1 ratio of 8.64% as of March and looming provisions, it was obvious that the lender was desperate to raise money. Desperation usually makes for poor bargaining power with investors.

The bank has pitiful insurance in the form of provisions against bad assets, as its coverage ratio is 43%. News reports suggest that Yes Bank has significant exposure to stressed firms of the Reliance Anil Dhirubhai Ambani Group.

New chief Ravneet Gill had detailed a 10,000 crore watch list, but as Ganapathy of Macquarie Capital points out, investors now fear that the rot in Yes Bank is yet to be fully revealed. Raising money from capital markets is going to be a challenge and the bank needs capital to grow. The stock’s drop by as much as 8.2% on Wednesday is not a good sign.

That said, investors can take some comfort from the fact that Gill has already assured the lender would fall in line with the regulator’s rules on every aspect. After Gill’s revelations, earnings estimates have been cut, valuation has taken a knock and analysts have downgraded the stock. Until the air on Yes Bank’s lending practices clears, the stock is unlikely to see any breakthrough.

Close