Yes Bank Plans To Hive Off Bad Assets Into A Separate Entity

Private lender Yes Bank Ltd. is considering segregating its bad assets into a separate entity as it aims to lower the stress on balance sheet.

The proposed organisation will be “professionally run, where there will be investors”, said Prashant Kumar, chief executive officer and managing director. This is subject to regulatory approvals. The bank has already created a separate vertical internally with more than 100 staffers to solely work on resolution and recovery of stressed accounts, he said.

If the banking regulator gives approval to the proposed “bad bank” entity, according to Kumar, any upside will be shared by the lender and investors.

Yes Bank’s gross non-performing assets stood at 16.8%, or over Rs 32,800 crore, as of March 2020. The corporate loans constituted 96.5% of the gross bad loans. Its provision coverage ratio stood at 74% and net NPA ratio stood at 5.03% as of March.

The bank’s special mention accounts-1 loan book, loans overdue by 30 to 60 days, stood Rs 10,781.3 crore and SMA-2, loans overdue by 60 to 90 days, at Rs 321.2 crore.

“Not only have we recognised all potential NPAs at the time of declaring results, but we have also increased provisions on loan and investment books,” Kumar said.

He, however, said Yes Bank doesn’t have any strategy for loan sell-downs. “Only if there is an opportunity in consortium loans, if a bank is planning to consolidate its position or if there is an opportunity to reduce consortium loans,” he said. “We are looking for all alternatives whether one-time settlement or sale to ARCs (asset reconstruction companies) depending on pricing.”

In March, a clutch of eight lenders—led by State Bank of India—had infused over Rs 10,000 crore into Yes Bank, as part of a rescue deal approved by the Reserve Bank of India. This plan was stitched together after the bank was put under a moratorium and its board superseded.

Still, the private lender is in need of a capital infusion.

Fundraising Via FPO

Last week, Yes Bank’s board approved a Rs 15,000-crore fundraising via a follow-on public offer. Of this, around Rs 200 crore is reserved for eligible employees. The fresh issue of shares will take place this week between July 15 and 17. The floor price has been set at Rs 12 apiece.

“The Rs 15,000-crore capital through the FPO will increase the bank’s CET-I ratio from 6.3% to 13% and ‎will take care of our growth requirements for the next two years,” Kumar said. “Since we have made provisions on stressed loan book, we may not require more than 100 basis points from this capital-raising for further provisioning due to the Covid-19 related stress.”

The bank had breached the RBI’s prescribed minimum CET-I ratio of 7.375% as of March 2020. Its tier-1 capital ratio stood at 6.5% compared with the minimum requirement 8.875%.

Through the FPO, Kumar said the bank is looking to have a broader investor base with the SBI committing to invest Rs 1,760 crore to keep its shareholding at 26%.

Lending Mix

Yes Bank’s total advances stood at more than Rs 1.71 lakh crore as of March 2020, with retail loans constituting around 23.8%, SME loans 12.6% and corporate loans 55.9%.

Kumar said the bank has been lending to retail and small-medium enterprise customers and to a few corporate clients depending on their needs over the last three months.

“We are looking to change the mix of loan book to retail and MSME at around 60% and corporate at 40%. Corporate focus will be on asset-light solutions in digital banking, transaction banking and foreign exchange, among others,” he said.

While the bank will go slow on corporate lending, it plans to leverage its digital capabilities to reach out to customers in the retail and SME segments.

Kumar, in an earnings call in May, had said there will be a reduction to the extent of Rs 7,000-8,000 crore in the corporate loan book. “But we would like to grow at least 20% on the retail side, so our overall loan book is expected to grow by almost 10%,” he had said.

As of March, 45% of the bank’s corporate customers have availed the loan moratorium, followed by 40% of its MSME clients and 45% of its retail customers, according to a draft prospectus.

Deposit Withdrawal

Yes Bank’s total deposits stood at a little over Rs 1.05 lakh crore as of March compared with Rs 2.27 lakh crore a year ago. Its current account-savings account ratio reduced to 26.6% in March from 32.1% in the corresponding period last year.

“In April, we have raised more fixed deposits than in the previous 12 months. We are seeing a growth in deposits driven by our customer service,” Kumar said, adding the bank aims to achieve a CASA ratio of 40%.

According to an earnings call, the lender managed to raise Rs 1.03 lakh crore of deposits in April, of which Rs 40,000 crore was corporate and almost Rs 53,000 crore in retail.

“Basically, the corporates that wanted to withdraw have already withdrawn, so now we are coming back to the old situation where the rollover is more than 50%. It is normalising,” Kumar had said in the earnings call.

(Corrects an earlier version that misstated the gross NPA number.)