Struggling YES Bank Raises $275 Million Via Qualified Institutional Placement

Amid urgent need for capital, private lender YES Bank on Friday has raised $275 million (Rs 1,953 crore) by selling shares in a qualified institutional placement (QIP) issue. While this capital will help the bank to maintain its mandatory core Tier 1 ratio above 8% by March 2020, it will not be enough for the struggling bank’s revival.

Although YES Bank earlier planned to raise $1 billion through the QIP route, it had to compromise at a lower amount amid looming concerns. The bank had set a floor price of Rs 87.9 per share for the issue with a proposed discount of not more than 5%. But, could not have been the case a year ago. The bank’s share price was Rs 404 on August 20, 2018, which came down to as low as Rs 79.50 on August 5, 2019. With the massive fall in share price, the bank’s investors lost over Rs 16,000 crore market capitalisation.

QIP is a process using which companies raise finance through the issue of securities to public without going through standard regulatory compliance.

On August 5, global rating agency Moody's kept the bank’s ratings “under review for downgrade” for the second time in less than two months indicating the worsened position of the bank. “The review for downgrade was initiated on June 11, reflecting our expectation that the ongoing liquidity pressures on finance companies will negatively impact YES Bank's credit profile, given its sizeable exposure to weaker companies in the sector,” it said in a statement.

According to Moody’s, as of March 2019, YES Bank's exposure to Indian housing finance companies (HFC) and non-bank finance companies (NBFC) represented 6.4% of its total exposure.

One part of the crisis at YES Bank can be understood if one looks at its recent financial results and its exposure to non-banking financial companies and real estate sector which prompted a rise in its bad loans. The other part can be attributed to its lending practices over year. The bank has been mired in numerous controversies facing allegations of fraudulent practices.

Last week, a Foreign investor Ocean Deity Investment Holdings complained to the Reserve Bank of India (RBI) alleging that YES Bank, along with a realty group Housing Development and Infrastructure Limited (HDIL) have moved funds to evergreen their loans between 2014 and 2016. This is just one among the ‘fraudulent’ accusations which the bank has in its name.

Last year, the RBI demanded the Yes Bank’s founder Rana Kapoor to step down as Chief Executive Officer, following a spat over breaches of confidentiality and regulatory guidelines revealed in their inspections. Simultaneously, the RBI also initiated a probe into the bank’s exposure towards IL&FS, Dewan Housing Finance Corp. Ltd (DHFL), India Bulls Group, and Sudhir Valia-promoted entities Fortune Financial Services India Ltd and Suraksha ARC.

Kapoor was replaced by Ravneet Gill in January this year. Now Gill is set to reshuffle the bank’s top management including chief financial officer (CFO), chief compliance officer (CCO) and chief operating officer (COO).

The fall of the YES Bank from the position of being a top lender a year ago is reflected in its financial results. In the first quarter of 2019-20, the bank’s gross non-performing assets (NPA) or bad loans ratio ballooned to more than 5% from 1.31% in the same period last year. In addition to this, the bank also classified an amount of over Rs 29,000 crore as below-investment-grade exposure.

The bank incurred as loss of Rs 1,507 crore in the March quarter compared to a profit of Rs 1,180 crore a year earlier. Also, in April 2019, the bank had classified about Rs 10,000 crore of its exposures (4.1% of its total loans) as potential non-performing loans over the next 12 months.

YES Bank’s Exposure to Cash-Strapped Companies

As per news reports, as of March 2019, YES Bank has a total exposure of over Rs 2,600 crore to various special purpose vehicles of Infrastructure Leasing and Financial Services, Rs 3,700 crore to Dewan Housing Finance Limited and Rs 550 crore in Jet Airways.