Troubled private sector lender YES Bank will need upto Rs 13,000 crore as additional equity capital in next one-two years for meeting regulatory norms for maintaining capital level.
Meanwhile, its reconstituted board will hold its first meeting tomorrow (March 26, 2020). The board headed by new non executive chairman Sunil Mehta will consider a proposal for raising funds (capital) by issuing shares or convertible bonds and warrants to qualified institutional investors. It has kept open the option of issuing shares on rights basis.
Its shares closed 15.26 per cent lower at Rs 29.7 per share on BSE.
Rating agency ICRA in statement said it has upgraded bank’s Basel III tier II bonds from “D” to “BB” and placed them on “Rating Watch with Developing Implications”.
The management has guided towards fresh slippages of five per cent in FY2021, which will result in high credit provisions. The slippages from standard loans class to non-performing asset (NPAs) category are expected to be about Rs 8,500 crore.
As per ICRA’s estimates, YES Bank would require equity infusion of Rs. 9,000-13,000 crore to meet the regulatory capital requirements including the Capital Conservation Buffers (CCB). As the regulatory norms require banks to maintain a CCB of 2.5 per cent as on March 31, 2020.
ICRA said the quantum and timing of capital raise (in second round) is important for maintaining the capital ratios above the regulatory levels in future. The private lender has indicated that it would raise fresh equity in the first quarter of new financial year (Fy21).
ICRA said it derives comfort from the new shareholding and the reconstitution of the bank’s board. Along with the equity infusion of Rs 10,000 crore by State Bank of India and other domestic banks, additional Tier 1 (AT-I) Bonds of Rs 8,415 crore have been written down. This has helped improve the Tier 1 capital ratios above the regulatory norms.
Post the equity infusion (Rs 10,00 crore) and write-down of the AT-I Bonds, bank's capital ratios are likely to improve with Common Equity Tier-I (CET-1) and Tier I of 7.6% and 7.8%, respectively. And Capital Adequacy Ratio (CAR) will be more than 9 per cent YBL’s regulatory capital adequacy ratio (Basel III) stood at 4.1% (CET-I of 0.6% and Tier I of 2.1%) as on December 31, 2019.
Additionally, with the removal of the moratorium (On March 18, 2020), the bank may witness deposit withdrawals for which liquidity support is to be provided by domestic financial institutions and the Reserve Bank of India (RBI), if required.