After much delay, YES Bank is scheduled to announce its results for the third quarter ended December 2019 (Q3FY20) on Saturday, March 14. The results assume significance in the backdrop of recent developments that saw the Reserve Bank of India (RBI) supersede the board of directors of YES Bank and appointed Prashant Kumar as the administrator. The apex bank also put under moratorium all deposits with YES Bank till the first week of April.
So, what do analysts expect the bank to unveil on Saturday?
“Quality of book / accounts; actual deposit base; details on the amount of money needed to meet the capital adequacy norms and get new investors on board; and an honest admission of the troubled assets of the bank are the four key things investors should monitor,” says Siddharth Purohit, an analyst tracking the sector at SMC Global.
The moratorium on withdrawal of deposits till April and the proposal to write down the additional capital tier-1 (AT-1) bonds, analysts say, has not gone down well with investors, who are likely to withdraw their stuck funds once the moratorium is lifted.
As of September 30, 2019, the Rs 10,800 crore of Yes Bank’s AT-1 bonds constituted over 40 per cent of the bank’s net worth of roughly Rs 27,000 crore. The bank estimates that it had Rs 10,000 crore or so of problematic loans, which could work out to around Rs 7,000 crore in net non-performing assets (NPAs). The situation is very fluid, given the arrest of Rana Kapoor and there may be “revelations” pushing up NPA estimates. READ ABOUT IT HERE
“We see the receipt of capital as an incremental positive for YES Bank, and the potential of future capital infusion has certainly brightened. However, we read the commitment of Rs 2,500 crore – Rs 10,000 crore of equity capital (depending on different scenarios), into a bank that is in a risky situation, as sub-optimal capital allocation for SBI’s shareholders. The system-wide fall-out is likely to be hardening yields (especially for AT1 instruments), risk aversion in lending by debt mutual funds and minimisation of a risk of a bank-run for now,” wrote Abhishek Murarka, an analyst tracing the company at IIFL in a co-authored report with Arash Arethna.
The government has roped in State Bank of India (SBI) to salvage YES Bank. The state-owned bank will be issued 245 crore shares at a price of Rs 10 per share for Rs 2,450 crore. This will be 49 per cent of the share capital of the reconstructed bank. The stake, however, comes with a caveat that SBI shall not reduce its holding below 26 per cent before completion of three years from the date of infusion of the capital.
“The quality of the book and the actual value of stressed assets will be critical. Any investor, be it SBI or any other, will closely look at these numbers before allocating more funds. As things stand, the picture is unclear as to what the actual numbers have been,” said A K Prabhakar, head of research at IDBI Capital.