Yes Bank also has to attract fresh deposits. (REUTERS)
Yes Bank also has to attract fresh deposits. (REUTERS)

Yes Bank needs loyal depositors now, more than locked-in shareholders

  • Will depositors take RBI governor Das seriously? That would be known after the moratorium lifts on Wednesday
  • The lender’s numbers also reveal a liquidity and solvency issue

If the 45% surge in Yes Bank Ltd’s share price on Monday is any indication, the lender is well on its way to full recovery. Investors are celebrating a quick and timely infusion of 10,000 crore by eight financial institutions under a rescue plan penned by the Reserve Bank of India (RBI).

Using the current market price of 37.10 and the diluted equity base of 12,550.5 million shares, the bank is being valued at 46,500 crore. About a week ago, the private sector lender was valued at less than 5,000 crore.

Talk about bang for the buck. The regulator and its companions certainly appear to have instilled confidence in shareholders through the rescue plan.

However, shareholders tend to get overexcited. The moot question is whether the bank’s depositors will play ball. The task to bring back business for Yes Bank is clearly cut out for the new board and the new management.

Graphic By Satish Kumar/Mint
Graphic By Satish Kumar/Mint

This is a big challenge, as the rot at the bank revealed by its numbers on Saturday shows.

It was a foregone conclusion that Yes Bank’s third quarter numbers would be horrible, but what stood out was the massive drop in deposits. In the December quarter, deposits of 43,742 crore moved out and another 28,249 crore left by 5 March. After a 35% fall in deposits in just under six months, the central bank put the lender under a moratorium.

RBI governor Shaktikanta Das, meanwhile, has yet again assured Yes Bank depositors that they need not panic and that their money is safe. Will depositors take him seriously? That would be known after the moratorium on Yes Bank lifts on Wednesday.

The lender’s numbers also reveal a liquidity and solvency issue.

The bank’s statutory liquidity ratio had breached the regulatory minimum of 18.25% of deposits by 5 March. What this means is that Yes Bank had to sell government bonds to meet immediate liquidity requirements, perhaps to honour the deposits moving out.

It is this erosion of trust that the rescue mission needs to repair. The infusion of 10,000 crore will help Yes Bank meet only immediate needs. While the lender’s shareholders need to lock in 75% of their investment, there is no such bar on depositors.

Yes Bank needs another 28,000 crore to reach a Common Equity Tier-1 ratio of 12% required for a growing bank, according to analysts at Emkay Global Financial Services Ltd. As such, a rights issue to existing shareholders would be necessary soon, perhaps of the same magnitude of the initial fundraising, if not higher.

Yes Bank also has to attract fresh deposits. Once eroded, the public trust in a lender takes a while to come back. In the case of India, patience and trust are both running thin, especially after a cooperative bank recently went bust.

My Reads Logout