YES Bank has option to extend November 30 deadline on binding offer

Embattled private sector lender YES Bank has the option to extend the deadline on the binding offer made by a US-based investor to invest $1.2 billion as equity in the bank. The deadline for the binding offer by investors to pick up sizeable equity in the bank expires on November 30.

According to a source close to the development, the bank is still in talks with the investor and has not taken any decision on the offer which would help the bank to shore up its finances and help mitigate its weakening financial position.  There is no clarity from the Reserve Bank of India (RBI) for the transaction as it would involve acquisition of substantial stake in the bank - taking into account the current market price. "The ball is in the RBI's court," said a source close to the development. A YES Bank source said both parties have the option to extend the deadline for the binding offer and the bank expects fresh capital to come in by December-end. The bank had made the announcement on October 31 that it has received a binding offer from an investor, but did not disclose the investor’s name.

If the bank fails to shore up its finances in time, it risks a downgrade by rating agencies as indicated by global rating firm Moody’s on November 6.  Moody’s had said the bank’s weakening financial position can be offset by the planned capital raise. But, it said, there are significant execution risks around the timing, price, and regulatory approvals required for the investment. During its review period for the bank, Moody’s said it would focus on the bank’s ability to raise new equity capital and warned that an inability to raise the planned equity capital would negatively impact the bank’s credit profile and rating. The threat of a downgrade has put more pressure on the bank to finalise the transaction.

An email sent to YES Bank did not elicit a comment. On Monday, the YES Bank stock closed 4 per cent down at Rs 65.90 a share — giving it total market valuation of Rs 16,807 crore.  Since the bank has made the announcement of the binding offer, its share price has gone up by 16 per cent. 

In August this year, the bank had raised Rs 1,930 crore via qualified institutional placement at an issue price of Rs 83.55 a share. The bank is in dire need of capital to not only provide for bad assets but also for growth. The Common Equity Tier 1 capital stood at 8.7 per cent as of September, close to the regulatory requirement of 8 per cent till March 2020. 

The bank’s asset quality deteriorated sharply in the September quarter, with its gross non-performing asset (NPA) ratio at 7.39 per cent in the second quarter (Q2) of 2019-20 (FY20), compared to 1.6 per cent reported in the September quarter of 2018-19. The net NPA ratio stood at 4.35 per cent in Q2FY20, against 0.84 per cent in Q2 of 2018-19. Its gross slippages were Rs 5,945 crore for September. The bank had lent funds to almost every stressed company in the past few years, which finally culminated in the bank reporting huge losses as these companies defaulted in repaying loans.