The Financial Express
Three years ago, a consortium led by State Bank of India (SBI) infused Rs 10,000 crore of capital to bail out Yes Bank. The beleaguered lender’s reconstruction plan mandated that 75% of the bank’s equity be under a three-year lock-in. Ajay Ramanathan explains what the expiry of this lock-in period means for the bank
What does the reconstruction plan say?
In March 2020, the Reserve Bank of India (RBI) superseded Yes Bank’s board due to the bank’s issues with deteriorating asset quality, inadequate capital and losses on its books. As part of the central bank’s reconstruction scheme, India’s largest lender, SBI, initially infused a capital of Rs 6,050 crore for a 48% stake in Yes Bank.
The scheme imposed a lock-in period till March 2023 for all investors. The terms of the reconstruction scheme barred investors from selling shares acquired in Yes Bank in the secondary market for three years. Additionally, SBI had to hold at least a 26% stake in the bank till March 2023. While SBI’s lock-in period ended on Monday, the lock-in for other investors ends on March 13.
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Who bailed Yes Bank out?
In 2020, eight financial entities came together under the central bank’s reconstruction plan to rescue Yes Bank. Apart from SBI, Axis Bank, IDFC First Bank and ICICI Bank are among the entities that took part in Yes Bank’s bailout. As of December 31, SBI held a 26.14% stake in Yes Bank, IDFC First Bank a 1% stake, Axis Bank a 1.6% stake, and ICICI Bank a 2.6% stake in the lender. SBI held close to 752 crore shares at Rs 10 apiece, while ICICI Bank held 75 crore shares. Housing Development Finance Corporation (HDFC) held a 3.48% stake and Kotak Mahindra Bank held a 1.3% stake.
Life Insurance Corporation of India held a 4.3% stake and non-banking financial companies held a 0.2% stake in Yes Bank as on December 31. Foreign shareholders held 24.59% as on December 31.
What will happen when the lock-in period expires?
The lock-in period expires on March 13, which means that the bank’s investors will be able to sell their shares in the secondary market.
With the expiry soon approaching, movement in the bank’s shares is expected to be volatile. But, the banks that acquired stakes in Yes Bank as part of the latter’s rescue plan are likely to hold on to their shares, considering the bank’s strong December quarter performance, as per some reports in the media.
Currently, the stock is trading at 1.3 times its adjusted book value, which factors in the guidance on improvement in return on assets. But developments on the bank’s decision to write-down additional tier-1 (AT-1) bonds is a key near-term risk for the bank’s stock, say analysts. While the rescue plan called for writing off the AT-1 bonds, a group of investors in these bonds have challenged this in the courts, alleging mis-selling by the bank.
How does Yes Bank’s balance sheet look?
The bank’s balance sheet grew nearly 13% year-on-year (y-o-y) to Rs 3.4 trillion, as on December 31, 2022. Total deposits grew nearly 16% y-o-y, and total advances rose 10% y-o-y.
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The gross non-performing asset ratio (GNPA) fell to a four-year low of 2% as on December 31 from 12.9% a year ago.
The bank has witnessed a gradual improvement in business growth and asset quality in the recent quarters. It has concluded the sale of stressed assets to JC Flowers Asset Reconstruction Company, which has led to substantial reduction in GNPA, now down to 2%. Going ahead, the bank is expected to garner a higher growth in advances, driven by a focus on higher-margin retail and small & medium-sized enterprise (SME) loans. The bank’s focus on advances growth and improving its margins may enable it to improve its return on assets to 0.9-1% in 2024-25 (April-March), say analysts. Going ahead, a steady asset quality trajectory will be key for the bank.
The AT-1 bonds issue remains under somewhat of a cloud. The Supreme Court has, in the interim, upheld a high court order to put on hold the write-off move. If Yes Bank is ultimately (that is if the SC rules against the write-off) forced to pay the holders of the AT-1 bond, it could lead to an outgo of close to Rs 8,400 crore.
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