Yes Bank says Rs 15k cr capital from FPO to suffice for 2 yrs; looking at cost rationalisation

Mumbai, Jul 13 () Private sector lender Yes Bank on Monday said the Rs 15,000 crore capital raising through FPO, the largest ever by any entity, will suffice the growth requirements for two years by taking capital buffers to over 5 percentage points over the regulatory obligation. It is also looking at manpower rationalisation to save costs, and feels up to 1 percentage point of capital may be required to provision the possible reverses due to the COVID-19 situation, its chief executive and managing director Prashant Kumar told reporters here.

The bank, which had to be bailed out by SBI in March, is aiming to raise the money by selling its shares at Rs 12-13 per piece - which is a discount of nearly 50 per cent to Friday's close - to raise the capital. SBI, which holds 49 per cent of the bank at present, has committed to invest up to Rs 1,750 crore.

Kumar explained the bank chose the follow-on public offer (FPO) route because it was the only one offering the flexibility to offer shares at a reduced price.

"The common equity tier-1 (CET-1) capital will go from 6.3 per cent to almost 13 per cent. It will take care of growth requirement for two years. In addition to the capital, we also have comfort of 2.50 per cent in deferred tax assets and are not including recoveries; 13 per cent CET also is 5 percentage points over regulatory requirements," Kumar said.

Kumar said the corporate governance issues and the legacy bad assets have been identified and provided for in the last two quarters by the new management, but conceded that COVID-19 can eat up up to 1 percentage point of capital through provisioning.

Without giving an exact time line, he said the bank is looking to rebalance its loan portfolios to have only 40 per cent reliance on the trouble-giving corporate lending segment and the rest on retail and SMEs as against the present 55:45 levels.

For corporate lending, where it amassed huge non-performing assets leading it to post record losses, it will concentrate only on the lower end of the segment and look at others from a fee-earning aspect like offering solutions on transaction banking and forex, and also getting low cost liabilities, Kumar said.

Having amassed a stressed asset pool of Rs 50,000 crore, the bank is looking at hiving it off into a separate subsidiary which will be jointly run with the help of investors, Kumar said, adding at present, there is a dedicated 100-member team tasked with recoveries and resolution.

He said from a long-term perspective, it is looking at "manpower rationalisation" to reduce its costs. It can be noted that as part of the restructuring scheme, all the employees have been assured that they will continue to be in the job for a year.

Its chief financial officer Anurag Adlakha elaborated that the bank is looking at outsourced manpower to reduce its costs and has also implemented a hiring freeze, under which positions being vacated due to natural hiring are not being replaced.

From an income generation perspective, Adlakha said the bank had to contract its balancesheet due to the lack of capital, but once money flows from the FPO, it can start lending again which will increase its income earning potential.

There is no holding requirement on the shares bought in the FPO except for the anchor investors, Kumar said, adding that the names of the anchor investors will be announced Tuesday evening.

Even as names like LIC and private equity player Tilden Park get reported as among the biggest investors in the FPO, Kumar declined to identify the new investors coming in and also said that there is "very good" interest among foreign institutional investors.

On the reports of the bank being under scanner over the FPO announcement, Kumar said it has not received any communication from Sebi. He acknowledged the withdrawal of exemptions received for accepting deposits at the GIFT City branch in May, but stressed that it does not have any impact on its operations.

It can be noted an ability to raise capital had been the final nail which led to the replacement of the bank's earlier management led by Ravneet Gill and the subsequent bailout by SBI, Kumar's former employer. Kumar has embarked on a capital raising very early into his term.

Loan bets and aggressive play under co-founder and chief executive Rana Kapoor is widely believed to have got the bank to the brink, leading to the bailout. Kapoor has been arrested for frauds alleged to have been committed while leading the bank, which is now without any entity designated as a promoter.

The bank scrip fell 13.33 per cent to close at Rs 22.10 per piece on the BSE, as against gains of 0.27 per cent on the benchmark.