Is YES Bank getting quality offers? Delay raises some serious questions

Yes Bank Ltd.’s decision to defer an announcement on new shareholders has heightened concerns about the quality of the offers it has received to bolster its capital ratios.

The Mumbai-based lender said its board failed to reach a final decision on potential investors at a meeting on Tuesday, though it favored a $500 million offer from Citax Holdings Ltd. Yes Bank is still reviewing another $1.5 billion of bids from parties including Canadian businessman Erwin Singh Braich, the bank said in a filing to exchanges on Tuesday.

“The delay is indicating that either there are regulatory issues or maybe the bank is not getting serious offers,” said Siddharth Purohit, an analyst at SMC Global Securities. “And that’s why the market is worried.”

Raising capital quickly is imperative for Yes Bank, which is staggering under the weight of soured loans to borrowers including firms caught up in a deepening shadow banking crisis. With core equity capital barely above the regulatory minimum of 8%, the lender needs to raise funds to provide for the bad debts and grow business.

“Time is of the essence for Yes Bank,” said Gaurang Shah, vice president, Geojit Financial Services Ltd. The management needs to do some “serious thinking” as the lender is in need of liquidity, Shah added.

The latest board meeting came less than two weeks after the bank revealed the names of potential buyers including Braich, who has faced multiple lawsuits and soured deals. The total value of the offers was $2 billion, the lender said.

Yes Bank shares have dropped 26% since that Nov. 29 announcement as investors queried the credibility of some of the offers and whether the Reserve Bank of India would approve them. The stock plunged 10% in Mumbai on Tuesday.

The past year has been tough for Yes Bank after the RBI asked co-founder Rana Kapoor to step down as chief executive officer over concerns about bad-loan disclosure and corporate governance. While current CEO Ravneet Gill has stepped up efforts to clean the balance sheet, investors have remained wary of the quality of the loan book and the lender’s ability to raise capital quickly.