Yes Bank Limited has been hit badly by bad loans and aftermath of India’s shadow-banking (non banking financial companies) crises is set to release details of their fund raising plans today.
It is expected that the Board will finalise the plan today in a meeting share the credentials of investors and the investment they are expected to make in the bank. However, RBI (Reserve Bank of India) will have the final say, and decide whether to approve or refute the plan and agreement submitted by Yes Bank.
It is said that Yes Bank is expecting to raise around $ 1.2 billion. The bank had earlier said that it has received some offers from individuals and institutions. A North American Family Office is keen in pouring money into Yes Bank, however the details have not been disclosed yet. Ravneet Gill, CEO (Chief Executive Officer) and MD (Managing Director) of Yes Bank Ltd., said that once the money will have been raised, it will be earlier for the management to run the company for the next 2 years.
In order to purchase stake in an Indian bank amounting 5% or higher, RBI’s approval becomes necessary. A non financial firm can claim stakes not higher than 10%, whereas a financial firm needs to abide by the cap of 15%. Though RBI does not seem to be interested in giving higher stakes to a single entity, there are provisions wherein one single investor can buy more than 40% of stakes, under ‘special circumstances’.
In the year 2016 people witnessed one such exception in which RBI allowed Fairfax Financial Holdings Limited, Canada to buy majority shares (51%) in Catholic Syrian Bank Limited (CSB Ltd.). This was the first time that the central bank allowed a foreign company to claim majority holdings in a domestic bank.
Yes Bank Ltd.’s share price have more than doubled since the closing bell of 1st October 2019, giving the bank a market value of around $ 2.5 billion. On the evening of 1st October, Yes Bank’s share price was Rs. 32, as of now the share price is around Rs. 71. This has helped the bank to halt its decline to around 61% this year.
Over the years, Yes Bank has been exposed to numerous real estate companies, shadow banks, and other stressed companies which has only increased the bank’s bad loans. As an aftermath the bank has been forced to liquidate its capital and set up provisions. Yes Bank’s core equity capital has dropped to 8.7%, being successful in marginally keeping it about the minimum rate of 8% as imposed by the RBI.
Ravneet Gill is working on clearing Yes Bank’s books as previously RBI had forced Rana Kapoor, Co-Founder, to step down when he failed to disclose the bad loans of Yes Bank. According to reports, Yes Bank have lent over Rs. 31,000 crores to companies who are not doing well and are unable to sustain themselves. Yes Bank might need more investment in the near future to cover up what could become bad loans.