Two years after India’s central bank had to step in to take control of Yes Bank to calm panicky depositors and stem systemic risk, the lender is aiming to expand its loan book and acquire smaller rivals to revive its business, its chief executive said.
The fundraising marked a rare vote of confidence in Yes Bank, which had to be taken over by the central bank in March 2020 after months of deterioration in its financials and allegations of mismanagement.
The bank also managed to raise the capital, its first since July 2020, at a time when the outlook for the banking sector in many overseas markets has dimmed due to slowing economic growth, which is expected to weigh on asset quality and loan demand.
The bank may also look at acquisitions, tapping into the fresh capital raised.
“We may also explore opportunities in microfinance, as that is an area we are not present yet and it will take time to build it internally so it may make sense to acquire instead,” said Kumar, who took over the reins in March 2020.
The capital raised will improve the bank’s common equity Tier-1 capital ratio, a key gauge of financial strength, to 15.7% from 11.9% currently, and the bank would not need to raise more capital for at least three to four years, he said.
LONG ROAD AHEAD
Set up in 2004, Yes Bank was the country’s fifth-largest lender up until early 2020, after which it lurched from one crisis to another, including the arrest of its founder amid allegations of governance lapses.
Its gross bad loans as a percentage of total lending had risen to 18.87% as of December 2019, from 2.1% a year earlier. At the end of June 2022, the ratio was 13.9%.
Other state-owned banks and private lenders had to step in 2020 to rescue the bank.
Yes Bank’s stock has risen over 22% so far this year, after having fallen 23% last year and 62% in 2020.
Despite the moderate improvement in its financials in the last few quarters, some analysts said it would take several years before the bank would be able to show meaningful growth and stabilisation of its key financial ratios.
However, analysts and investors remain sceptical.
“Even if the Yes Bank turnaround works, it’ll take at least six to seven years,” said a fund manager, whose portfolio currently does not hold the bank’s stock and who declined to be identified as he was not authorised to speak to the media.
“I don’t think the latest developments will excite investors.”