Yes Bank Receives $1.2 Billion Binding Offer

Yes Bank Ltd. said it has received a binding offer for an investment worth $1.2 billion from a global investor as part of its fund-raising efforts.

The funds would be raised through an issuance of fresh equity shares, the private lender informed exchanges on Thursday. The investment is subject to regulatory, board as well as shareholders’ approvals. “The Bank also continues to be in advanced discussions with other global and domestic investors,” it said.

On Oct. 7, the bank had informed exchanges that it is in the process of finding investors to raise requisite funds. Earlier, in an interview to Bloomberg, the bank’s Managing Director and Chief Executive Officer Ravneet Gill had said that the fund-raising would happen “sooner than the market expects”.

Gill, when approached, declined to comment further on the binding offer received. The lender is scheduled to report quarterly earnings on Friday.

Watch | Yes Bank’s chequered history.

Will The RBI Rules Permit The Deal?

Based on Wednesday’s market price, an investment of $1.2 billion via issuance of fresh equity shares would mean that the investor would end up holding close to 33 percent in the bank.

Under normal circumstances, Reserve Bank of India rules restrict a single investor from holding more than 10 percent in a private sector bank. However, according to the latest set of rules released in 2016, there are exceptions to this rule. For instance, a “regulated, well diversified and listed/ supranational institution/ public sector undertaking/ government” can hold up to 40 percent, as per the circular dated May 2016.

The rules also have a window for “special circumstances”, where a decision will be made on a case-by-case basis. It is not clear whether the RBI would see Yes Bank’s case as a special circumstance, however the regulator increased oversight on the lender by appointing former deputy governor R. Gandhi to the board, invoking special provisions in the Banking Regulation Act.

“RBI has made exceptions in the case of certain banks which have had issues in the past. If the move brings systemic stability, RBI may consider making exceptions,” said Ashvin Parekh, managing partner at Ashvin Parekh Advisory Services.

A recent exception has been made in the case of Catholic Syrian Bank, where Canada-based Fairfax Holdings was allowed to pick-up 51 percent stake in the bank. Also, LIC was allowed to buy majority stake in IDBI Bank from the Indian government.

What The Capital Will Mean For Yes Bank

The investment, if approved, will come as a relief to a bank which has faced both financial and regulatory pressure.

Last year, the RBI turned down a request for an extension of founder-CEO Rana Kapoor’s term. Kapoor’s shareholding in the bank has since diminished to below 1 percent.

Gill, who took over as CEO in March 2019, has been trying to clean-up the bank’s books. Its gross non performing assets ratio rose to 5 percent at the end of June compared to 1.3 percent a year ago. In addition, the bank has identified a pool of nearly Rs 10,000 crore in loans as a watchlist.

The bank needs capital to clean-up its books, increase provisioning and return to stronger growth in its portfolio.

As on June 30, the bank’s capital adequacy ratio stood at 15.7 percent, with the Tier 1 ratio at 10.7 percent. In August, Yes Bank managed to raise Rs 1,930 crore through a qualified institutional placement to investors including Societe Generale, Key Square Master Fund, BNP Paribas Arbitrage and HDFC Balanced Advantage Fund. The shares were sold at Rs 83.55 per share.

According to calculations from BloombergQuint research, a $1.2 billion capital infusion would push up the core-equity tier-1 ratio by 260 basis points.