- The private bank on the brink of collapse has been saved by the government who forced a bunch of peers to invest in Yes Bank.
- Global investment bank Nomura, which suspended its rating on the bank, said that Yes Bank will remain on life support for a long time.
- Yes Bank's capital levels are weak, there has already been a run on the deposits and it may get worse once the government removes the withdrawal limit on March 18, warns Nomura.
- There are at least 3 broad reasons why people buying Yes Bank shares for a bargain may not gain in the long run.
Meanwhile, the RBI announced that the limit on withdrawing deposits will be lifted on March 18 at 6 pm. Governor Shaktikanta Das appealed to investors to avoid panic withdrawals.
However, global investment bank Nomura, which suspended its rating on the bank, said that Yes Bank will remain on life support for a long time citing at least three broad reasons for its call.
1. Operating performance significantly deteriorated
Yes Bank reported an operational loss of ₹6.4 crore in the latest third quarter ended December 2019 after additional loans worth nearly ₹24,600 crore (over $3.3 billion) turned bad. Even before the RBI stopped withdrawals, many wary depositors had taken out their money — at least one in every five rupees deposited in the bank had been withdrawn between October and December 2019. There may be more withdrawals , further hurting the bank, once the RBI moratorium is lifted on March 18.
2. Asset quality deteriorated sharply
Gross non-performing assets (NPA), simply put the bad loans, rose sharply to 18.9%. Again, one in every five rupees lent by the bank are unlikely to be repaid. The bank further projected another 5% of the loans may go from being 'stressed' to 'bad', which means it has to be written off. "While the bank did ramp up its provision cover to 73% but with balance-sheet size shrinking, the left-over book will remain highly toxic, making any recovery in profitability very difficult, in our view," Nomura said in report on Yes Bank on March 16.
3. Shareholders can't exit if things go awry
The government's rescue plan that includes investments from peers like State Bank of India, ICICI Bank, HDFC Limited, and Axis Bank among others will reduce stake of existing shareholders. When shares are issued to new investors, the stake that existing shares represent fall.
The amount of capital Yes Bank has, even after the rescue, is still very little— the tier-1 capital is at 7.6%. That means, it may need more investment in the future, and that would mean more stake dilution for the investors.
| Bank | Investment in Yes Bank | Share price reaction |
| State Bank of India | ₹7,250 crore | -7.71% |
| ICICI Bank | ₹1,000 crore | -10.31% |
| HDFC | ₹1,000 crore | -10.10% |
| Axis Bank | ₹600 crore | -10.18% |
| Kotak Bank | ₹500 crore | -6.13% |
| Federal Bank | ₹350 crore | -8.10% |
| Bandhan Bank | ₹300 crore | -13.91% |
| IDFC First Bank | ₹250 crore | -11.60% |
Making matters worse, investors holding over 100 shares of Yes Bank are locked in — 75% of shares held — for at least three years. If there is more dirt that is unveiled in the days to come, even if an investor doesn't have the appetite for that kind of risk, he will have bear the brunt of it.
SEE ALSO:
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Rana Kapoor's hotels, bungalows, flats and paintings — everything that Yes Bank founder is suspected for buying with kickbacks
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