Four brokerage houses question YES Bank's future, raise concerns

Brokerages have raised red flags after the private lender was unable to give clarity on its fund raising plans after two board meetings

After YES Bank’s inability to raise funds worth $2 billion, brokerage houses have started questioning the future of the private lender. After a five-hour long meeting on Tuesday, the bank told exchanges that it is considering the $500-million offer made by Citax Holdings and Citax Investment Group. 

A decision regarding allotment will be taken at the next board meeting. It also told the exchanges it is still considering the binding offer of $1.2 billion offer from Canadian businessman Erwin Singh Braich and SPGP Holdings. Together, the two bids accounted for 85 per cent of the $2-billion in offers the board had detailed last month. 

Few reports are also doing the rounds that ‘Big Bull’ Rakesh Jhunjhunwala was likely to shelve his plan of investing $25 million in the private sector lender. However, YES Bank called such reports “purely speculative”. 

Macquarie Research in its note ‘Nationalisation Looms’ by Suresh Ganapathy says: “The total capital needed at least would be around $2.5-3 billion over the next 12-18 months, even after factoring in operating profits for the next six quarters.”

“In our view, if the bank is unable to raise money in the next six months, it poses a grave danger to the financial system. When a bank collapses, the clearing system comes to a halt and hence, the contagion impact of a bank collapse is far higher than that of the collapse of non-banking financial companies in our view.”

Nomura has maintained a neutral rating on the stocks, with a target of Rs 63 as it feels the board outcome on bids is negative, adding that the $1.2-billion bid is unlikely to go through, given the legal cases. 

“We view this as a negative development, as the $1.2-billion bid is unlikely to go through, given the legal cases (including alleged bankruptcy against Erwin Singh Braich), which would put into question the availability of the $500-million bid as well as the rest of $300 million bids, as could have been conditional on raising a large part of the required capital,” Nomura Research added. 

“There has been very little resolution in the large stressed exposures, while large provisioning without a capital infusion will lead to breach of capital limits soon,” said Nomura.

IDFC Securities in its reports has raised several flags and noted that “they don’t know if Citax will pass the Reserve Bank of India’s ‘fit and proper test’. Given that nothing definitive has come out regarding the bank’s capital raise and many investors from the list have backed out, we reiterate ‘underperformer’. The uncertainty and delay in capital-raise will weigh on the bank’s ability to provide for bad loans, raise and retain deposits, and could also lead to further credit rating downgrades.”

ICICI Securities in its report has maintained its ‘hold’ recommendation on the stock and has noted: “Key will be capital infusion. While we have assumed $1.2 billion versus the bank’s communication of bids of $2 billion, even somewhere close to $1 billion would be viewed fairly positively in the current environment.

“The bigger task after capital-raising would be to reform the bank into a transactional, granular-led model over the medium term. Many challenges remain.”