A troubled private sector lender, YES Bank will need up to Rs 13,000 crore as additional equity over the next two years to meet regulatory standards for maintaining the capital level.
Meanwhile, its reconstituted board of directors will hold its first meeting tomorrow (March 26, 2020). The board of directors, chaired by the new non-executive chairman, Sunil Mehta, will consider a fundraising proposal (capital) by issuing shares or convertible bonds and warrants to qualified institutional investors. It retained the possibility of issuing shares on the basis of rights.
Its shares closed down 15.26% to Rs 29.7 per share on the BSE.
The rating agency ICRA said in its press release that it had upgraded Basel III level II bonds from “D” to “BB” and placed them on “Rating Watch with Developing Implications”.
Management has headed for further 5% slippages in fiscal year 2021, which will result in high credit provisions. The slippages from the standard loan category to the non-performing asset category (APN) should be around 8,500 crore rupees.
According to ICRA estimates, YES Bank would need a capital injection of Rs. 9,000 to 13,000 crores to meet regulatory capital requirements, including Capital Conservation Buffers (CCB). As regulatory standards oblige banks to maintain a CCB of 2.5% as of March 31, 2020.
CIFAR said the quantum and timing of the capital increase (in the second round) is important to keep capital ratios above regulatory levels in the future. The private lender has indicated that it will raise new equity in the first quarter of the new fiscal year (Fy21).
CIFAR said it was comforted by the new participation and the re-establishment of the bank’s board of directors. In addition to the injection of equity of 10,000 crore rupees by the State Bank of India and other national banks, additional level 1 bonds (AT-I) of 8,415 crore rupees have been written down. This has improved the Tier 1 capital ratios above regulatory standards.
After the infusion of equities (10.00 crore Rs) and the depreciation of AT-I bonds, the capital ratios of banks should improve with Common Equity Tier-I (CET-1) and Tier I of 7 , 6% and 7.8%, respectively. And the capital adequacy ratio (CAR) will be greater than 9%, the regulatory capital adequacy ratio of YBL (Basel III) stands at 4.1% (CET-I of 0.6% and Tier I of 2.1%) as of December 31, 2019.
In addition, with the removal of the moratorium (March 18, 2020), the bank could witness withdrawals of deposits for which liquidity support will be provided by national financial institutions and the Reserve Bank of India (RBI), if necessary.