YES Bank announces results
YES Bank is scheduled to announce its results for the third quarter ended December 2019 on Saturday, March 14. The results assume significance within the backdrop of recent developments that saw the Federal Reserve Bank of India (RBI) supersede the board of directors of YES Bank and appointed Prashant Kumar because of the administrator. The apex bank also anesthetizes moratorium all deposits with YES Bank till the primary week of April.
So, what do analysts expect the bank to unveil on Saturday?
“Quality of book/accounts; actual deposit base; details on the quantity of cash needed to satisfy the capital adequacy norms and obtain new investors on board; and honest admission of the troubled assets of the bank are the four key things investors should monitor,” says Siddharth Purohit, an analyst tracking the world at SMC Global.
The moratorium on withdrawal of deposits till April and therefore the proposal to write down down the extra 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.
Rs 10,800 crore of Yes Bank
As of September 30, 2019, the Rs 10,800 crore of Yes Bank’s AT-1 bonds constituted over 40 percent of the bank’s net worth of roughly Rs 27,000 crore. The bank estimates that it had Rs 10,000 crore approximately of problematic loans, which could compute to around Rs 7,000 crore in net non-performing assets (NPAs). things are extremely fluid, given the arrest of Rana Kapoor and there could also be “revelations” pushing up NPA estimates.
“We see the receipt of capital as an incremental positive for YES Bank, and therefore 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’s during a risky situation, as sub-optimal capital allocation for SBI’s shareholders. The system-wide fall-out is probably going to be hardening yields (especially for AT1 instruments), risk aversion in lending by debt mutual funds and minimization of a risk of a bank-run for now,” wrote Abhishek Murarka, an analyst tracking the corporate at IIFL during a co-authored report with Arash Aretha.
The government has roped in the depository financial institution of India (SBI) to salvage YES Bank. The state-owned bank are going to be issued 245 crore shares at a price of Rs 10 per share for Rs 2,450 crore. this maybe 49 percent of the share capital of the reconstructed bank. The stake, however, comes with a caveat that SBI shall not reduce its holding below 26 percent before completion of three years from the date of infusion of the capital.
“The quality of the book and therefore the actual value of stressed assets are going to be critical. Any investor, be it SBI or the other, will closely check out these numbers before allocating more funds. As things stand, the image is unclear on what the particular numbers are,” said A K Prabhakar, head of research at IDBI Capital.
Moratorium on Yes Bank
The moratorium on Yes Bank could have a transitory impact on most corporates exposed to the bank, and delays in resuming normal services may impact the near-term liquidity of a number of its customers, rating agency Ind-Ra said.
“India Ratings and Research (Ind-Ra) has administered a first-cut assessment of the impact of the recently imposed moratorium on Yes Bank’s…withdrawals till April 3, 2020. The disruption might be transitory for many corporates exposed to the bank, given the administrator’s statement of resuming the fully operational status by next week,” the rating agency said.
However, delays in resuming normal services could impact the near-term liquidity of a number of the bank’s customers.
Also, corporate groups with an outsized dependency on the bank could face an extended period of disruption.
These disruptions could stem from their usage of Yes Bank as a lender for facilities like cash credit, letters of credit, bank guarantees and other capital facilities also as a term debt provider.
The moratorium is additionally likely to impact the liquidity cushion available with many corporates within the sort of deposits and investments parked with Yes Bank or available unutilized lines.
Also, issuers with Yes Bank as a service provider could also see a severe impact on their day-to-day operations.
These are the issuers where Yes bank manages their trust and retention accounts and debt service reserve accounts, is counterparty for securitization transactions or acts as a set agent, among other services.
There might be a possible second-degree impact through the unavailability of transaction channels like the point of sale, wallets and clearing facilities where Yes Bank may be a third party. Similarly, for companies where the key supplier or key customer banks with Yes Bank, there might be a cascading impact.
Ind-Ra believes that the impact of the moratorium must be assessed on a case-by-case basis. Companies sitting on a weak liquidity buffer alongside large dependence on Yes Bank for fund-based capital lines are likely to face near-term liquidity challenges.
Ind-Ra further said it expects large non-banking financial institutions to generally have a well-diversified funding mix and limited reliance on Yes Bank on their liability side. Also, most of those don’t have any material deposits with the bank.
The impact on infrastructure projects is contingent on the extent of involvement of Yes Bank within the daily operations.
Ind-Ra expects a better risk in cases where the bank is closely linked and is that the escrow banker (notwithstanding the number of banks within the consortium).