Troubled private sector lender Yes Bank, which saw the exit of founder CEO Rana Kapoor early this year and a sharp erosion of market capitalization, is looking to raise equity of 86.62 billion rupees (US$1.2 billion) through a binding offer from a US-based investor by December.
The bank also claimed it is in discussions with various potential suitors who are willing to pump in up to $3 billion collectively. They include foreign as well as domestic private equity and strategic investors, the Press Trust of India reported.
Yes Bank’s current chief executive Ravneet Gill, who took charge in March, asserted that the asset quality issues raised by the Reserve Bank of India were now under check. He said the money raised will suffice the bank for two years, after considering its aim to expand the loan book to “high-teen” levels, he added.
Gill denied reports that Singapore-based DBS Bank was going to buy a 51% stake in Yes Bank. DBS Bank also issued a denial. “The rumors of DBS acquiring a stake in Yes Bank are unfounded and baseless,” a DBS spokesperson told Indo-Asian New Service.
Regarding raising equity, Gill claimed a North American investor had made a binding offer last Thursday over email. The bank has disclosed the matter to stock exchanges.
He said the US investor had also attached a letter from a major US bank with which it has a long relationship, affirming the former’s ability to pay the promised sum. Gill said the bank has signed a non-disclosure agreement with the potential investor.
The Yes Bank chief said a board committee on capital raising will be meeting next week to consider both the binding proposal and also the other ones it has. It will accordingly disclose the names of the chosen investors after discussions with the Reserve Bank of India.
For any stake purchase of 5% or more in a bank, an approval by the central bank is mandatory.
Gill said the American investor had asked for a seat on the board of the bank against the stake. Private equity investors have also asked for a board seat and the bank is comfortable with taking them on the high table. All the investors have done thorough due diligence of the books, he claimed.
The Yes Bank chief said the investment may not trigger an open offer, because of the voting rights of the investors will be at 15%.
For the second quarter ended September 30, the bank had lost 6 billion rupees ($85 million), compared with a profit of 9.65 billion rupees ($136 million). The bank was hit by a one-time tax impact of more than 7 billion rupees. This was its second biggest quarterly loss.
This year the Bank’s shares have so far lost 68.8% of their value, weighed down by its exposure to stressed assets such as Jet Airways, IL&FS, CG Power, Café Coffee Day and Cox and Kings. “We got hit by every torpedo that was fired,” Gill observed.
Earlier its asset quality was red-flagged by the Reserve Bank during a review. It found a divergence of 41.76 billion rupees ($580 million) in its gross non-performing assets for the year ended March 2016.
For the following year, the central bank found that the bank reported an even larger bad loan divergence of 63.55 billion rupees ($900 million), three times the reported amount.
The Reserve Bank then gave its marching orders to Kapoor, who vacated his post by the end of January, 2019. Following this inglorious departure, Deutsche Bank India CEO Ravneet Singh Gill was named Yes Bank’s MD and CEO and took over from March 1.
Kapoor, along with his brother-in-law Ashok Kapur, founded YES Bank in 2004. In a short span, he managed to grow the bank’s corporate and retail loan book aggressively and substantially. However in 2008, Kapur died during the “26/11” terrorist attack that rocked Mumbai.
Rana Kapoor then took full control of the bank, but the going was never smooth. He had many run-ins with co-promoter Ashok Kapur’s wife and daughter, and the matter was even fought in courts.