Bank

12 Feb

Union Bank likely to recover ₹30,000 mn in 4QFY20: Rajkiran Rai G. Chief Executive Officer (CEO), Union Bank of India

On Tuesday, Sensex ended up 236 pts higher and Nifty settled 76 pts higher at 12,108 level ahead of Delhi Assembly Elections outcome.  Last week of earnings season and macroeconomic data-points due to be released during the week including CPI/ WPI Inflation and IIP data expected to keep the markets volatile.
Among the sectors, Media (+1.6%), Metal (+0.9%), Bank (+0.8%) were the top-performing indices. All the key indices settled in the positive territory except FMCG index. Among stocks, Nestle India, Bharti Airtel, M&M and TCS were the top laggards, while gainers were NTPC, Maruti Suzuki, Power Grid, and IndusInd Bank.
Union Bank likely to recover ₹30,000 mn in 4QFY20: Rajkiran Rai G. Chief Executive Officer (CEO), Union Bank of India
Edited excerpts of an interview with Mr Rai, Chief Executive Officer (CEO), Union Bank; dated 11th February 2020:
  • Public sector lender Union Bank of India is expecting to recover and upgrade loans worth ₹30,000 mn in the March quarter, the bank’s chief executive officer (CEO) Rajkiran Rai G. said, taking its total recoveries in FY20 to ₹80,000 mn.
  • Mr Rai informed that total recoveries and upgradations for 9MFY20 have been ₹49,100 mn and are expecting another ₹30,000 mn in 4QFY20 both from the National Company Law Tribunal (NCLT) and non-NCLT accounts. So, the Bank can close the year at about ₹80,000 mn.
  • Of the expected ₹30,000 mn, Rai expects ₹10,000 mn from large accounts where resolutions have been already sanctioned and the rest from upgradations of bad loans into standard.
  • He is banking on the fact that settlements by defaulting borrowers tend to peak in the fourth quarter of every fiscal year. He is expecting one big steel account to close to resolution and that should give ~ ₹7000-8000 mn of recoveries.
  • In the December quarter, the bank recovered bad loans worth ₹25,830 mn, including ₹3,280 mn from written-off accounts. Banks write off loans from their books after fully providing for them when chances of recoveries seem bleak. However, recovery efforts are continued and whatever comes back is shown as other income.
  • Meanwhile, the bank said its 3QFY20 profit rose nearly four-fold to ₹5,750 mn from a year earlier, helped by better recoveries and higher interest income. The state-run bank had reported a profit of ₹1,530 mn in the year-ago period.
  • Mr Rai said that the Bank was helped by some good recoveries of ~₹20,000 mn which came from Essar Steel, Ruchi Soya Industries and Prayagraj Power Generation Co. Ltd.
  • According to him, in the Essar Steel loan, the bank had provided 50%, and it booked an interest income of ₹2,390 mn. On Ruchi Soya, it had 100% provisioning and the recoveries came from the written-off account.
  • Rai said the bank has not factored in “harmonization provisions” in this quarter and even the quantification has not happened. This category of provisions was recently reported by Punjab National Bank which set aside ₹15,000 crores in 3QFY20. These provisions apply to loans which were so far classified differently at different banks that are set to be merged. Union Bank of India will be merged with Corporation Bank and Andhra Bank.
  • Mr Rai explained that it is too premature to talk about that number (harmonization provision) and the RBI has not asked about it as well.

Consensus Estimate: (Source: market screener, investing.com website)

  • The closing price of Union Bank of India was ₹ 49/- as of 11 th February 2020. It traded at 0.4x/ 0.4x/ 0.3x the consensus BVPS for FY20E/ FY21E/ FY22E of ₹ 124/132/157 respectively.
  • Consensus target price of ₹ 69/- implies a Price to Book multiple of 0.4x on FY22E Book Value of ₹ 157/-.
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11 Feb

Need to see countercyclical flows in debt mutual funds- Mr S Naren, ICICI Prudential AMC

Update on the Indian Equity Market:

On Monday, NIFTY closed -0.55% lower. Among the sectoral indices, Metal (-3.0%), Auto (-2.5%), Media(-1.6%) closed lower. None of the sectoral indices closed on a positive note. The biggest gainers were UPL(+4.8%), Bajaj Finance (+1.6%), and Kotak Bank (+1.2%) whereas Zee Entertainment (-7.2%), M&M (-7.2%), and Tata Steel (-5.9%) ended with losses.

Edited excerpts of an interview with Mr S Naren, Executive Director and Chief Investment Officer, ICICI Prudential AMC with CNBC-TV18:

  • Mr Naren said the recent policy that the Reserve Bank of India (RBI) has come up with of giving term repo, may act as a trigger. Any bank that has surplus government securities gets easy access to cheap money to do onward lending.
  • This may bring down rates which may act as a route to give good returns on credit funds.
  • He further saidif valuations are attractive, cycle is attractive and people are not willing to look at the asset class in a big way then one should not bother about triggers, automatically trigger will come and money will be made.
  • Speaking on telecom sector he said, as long as we are dependent on telecom, the few survivors should do better because the amount of money that people spend on telecom each month is high.
  • There is a lot of opportunity in India and he said, it is better if we have 3 survivors in a big country like India and all the 3 should have a superb outlook for the next decade or two.
  • About the flows into mutual fund, he said theinvestors in India have been behaving brilliantly. Whenever markets go up the flows drop and whenever markets go down flows go up.
  • SIPs are stable. Itis only the debt side of business that is not having countercyclical flows.
  • There is a need to see countercyclical flows in debt schemes as equity schemes because there are opportunities which are being missed.
  • The debt mutual funds are equally important part in every investor’s asset allocationaccording to him.
  • The company is successful in getting money in asset allocator, fund of fund and categories like balanced advantage but target of getting mega funds in debt mutual fund is not achieved.

Consensus Estimate (source: market screener and investing.com websites)

  • The closing price of ICICI Bank was ₹ 535/- as on 10-February-20. It traded at 32x/ 18x/ 15x the consensus earnings estimate of ₹ 16.6/ 29.0/ 35.5 for FY20E/FY21E/FY2E respectively.
  • Consensus target price of ₹ 624/- implies a PE multiple of 18x on FY22E EPS of ₹ 35.5/-.

 

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05 Feb

SBI Cards IPO to hit the market this quarter: SBI Chairman

Update on the Indian Equity Market:

On Tuesday, NIFTY ended positive at 11,979 (+2.3%). The top gainers in NIFTY were TITAN (+7.3%), Infratel (+5.7%) and IOC (+5.6%). ZEE (-5.3%), Bajaj Auto (-3.8%) and Yes Bank (-2.8%) were the top NIFTY losers. All the sectors were in the green. The top sectoral gainers were Metal (+3.3%), Financial Service (+2.9%) and Realty (+2.8%).

Excerpts from an interview with Mr Rajnish Kumar, Chairman, State Bank of India (SBI) that was published in Economic Times on 03rd February 2020:

  • SBI believed that no one needed an insurance cover as far as deposits in SBI are concerned. But as far as the system is concerned, after the problems with the cooperative bank which happened in Mumbai, there was a demand that the limit for insurance cover which was set some 27 years ago needs to be revised. This move was much needed and will create more confidence in the minds of the people about banks.
  • AGR Telecom problems: According to him, the matter is sub judice and will be waiting for the Supreme Court decision. The hearing is on 4th February. He thinks and believes that the matter will ultimately be sorted out to the satisfaction of both the parties – the government and the telecom operators. He had a general discussion with a lot of people in the telecom sector where they hinted that they will have at least three to four large telecom operators and the country cannot be served with a lesser number of telecom operators. This has given Mr Kumar  confidence and hope that this matter will get sorted out.
  • Barring one HFC account, things are looking up at least on the corporate recovery front.  This HFC account was in trouble, and SBI was readying for it since September and had started providing for it. Mr Kumar had said in the past that from the recovery and resolution perspective, December and March quarters are likely to be very good for the banking system. SBI is expecting some good resolution and implementation of resolution plans in respect of a couple of large accounts.
  • The loan growth for SBI was around 7% in this quarter coming from their international banking book. There is more demand for foreign currency borrowings from Indian corporates. The retail story is intact and SBI is growing very well. The only thing is the corporate sector demand revival. The loan pipeline is fairly good. As these loans get disbursed, FY21E growth numbers may turn out to be better than FY20. The utilization of limits definitely improved in the last two months and SBI may end up somewhere around 9% YoY growth.
  • The loan processing fee has improved significantly on a QoQ basis for SBI. It indicates that during the December quarter, SBI has processed more proposals. The loan pipeline is of more than Rs 1 lakh crore and all of these loans will get disbursed eventually over the next six months and that is a good indicator from a recovery point of view.
  • SBI Card valuation: According to him, the penetration of credit cards in India is very low and as the economy develops, there will be demand for credit and credit cards. At the same time, SBI card business is growing decently. SBI IPO is expected to happen in this quarter.
  • He said that the move by the government to divest stake in IDBI Bank and list LIC are two measures that stand out in this year’s budget.

Consensus Estimate: (Source: market screener website)

The closing price of SBI was ₹ 306/- as on 4-February 2020. It traded at 1.2x/ 1.1x/ 1.0x the consensus book value of ₹ 249/ 280/ 317 for FY20E/ FY21E/ FY22E respectively.

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23 Jan

Growth is bound to come – Shyam Srinivasan, Federal Bank

Excerpts from an interview of Mr Shyam Srinivasan, MD & CEO, Federal Bank with CNBC TV-18 dated 21-01-2020:

Update on the Indian Equity Market:

On Wednesday, NIFTY closed -0.5% lower. Among sectoral indices NIFTY Metal (-1.5%), NIFTY PVT Bank (-1.0%), NIFTY Auto (-0.9%) closed lower. While Nifty Media (1.7%), NIFTY IT (+1.0%), NIFTY FMCG (+0.02%) closed on a positive note. The biggest gainers were Zeel (+4.9%), Grasim (+2.6%), Nestle (+1.8%) whereas ONGC (-5.3%), Cola India (-5.2%) and NTPC (-3.9%) ended with losses.

  • It was a weak third-quarter for Federal Bank as loan growth and net interest margins came in at an all-time low.
  • Mr Srinivasan says, there are no significant issues except for the two housing accounts which are under stress. Other granular businesses are showing marked progress and it will continue.
  • He says they don’t have a single case above 100 cr which is dodgy and therefore the outlook is positive.
  • Speaking about their non-corporate book, he says, their portfolio is significantly secured. Banks that celebrated unsecured success over many quarters had the gains and now have to face some pain.
  • As the portfolio is secured, between now and next 3-4 quarters, the bank does not expect any large formation of stress on the secured side unless property prices get crash.
  • On loan growth, he says, retail is looking north of 24-25 per cent. The large tickets are okay, so the blended margins as the bank exit FY20 will be between 14%- 15%.
  • The gold loan book is expected to grow at 25%. The bank is also gaining share in the auto loan segment, particularly in Mumbai, Kerala and south.
  • Agriculture is seeing pain across banks due to waivers announced by various states.
  • He says growth is bound to come. It cannot keep the system in paise mode. So, the focus will be on getting credit cost down.

Consensus Estimate (Source: market screener and investing.com website)

  • The closing price of Federal Bank was ₹ 93.70/- as of 22-January-20. It traded at 1.2x / 1.1x / 1.0x the consensus Book Value for FY20E / 21E / 22E of ₹ 73.0/81.5/90.6 respectively.
  • Consensus target price of ₹ 112/- implies a Price to Book multiple of 1.2x on FY22E Book Value of ₹ 90.6.
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20 Jan

Repayment rates for all our loan portfolios very healthy: Chandra Shekhar Ghosh, Bandhan Bank

Update on the Indian Equity Market:

On Friday, NIFTY closed lower at 12,352. Among sectoral indices NIFTY Pharma (+1.7%), NIFTY Auto (+0.4%), NIFTY Media (+0.4%) closed higher. NIFTY Bank (-0.8%) and NIFTY Pvt Bank (-0.8%) were the losers. The biggest gainers were Bharti Airtel (+5.5%), Dr. Reddy (+3.0%) and Reliance (+2.8%) whereas Infratel (-11.1%), IndusInd Bank (-2.6%), and GAIL (-2.1%) ended with losses.

Excerpts from an interview of Mr Chandra Shekhar Ghosh (MD & CEO), Bandhan Bank with Economic times dated 15-01-2019:

  • There are two factors for profit growth; one is that they have controlled the non-performing assets. The repayment rates for all their loan portfolios have been very healthy which contributes directly to the interest income.
  • The second factor is their reach in rural areas, which at 70% while other private banks which have average deployments of 27%. Most of their business is in areas where costs are minimal, which is an advantage for them.
  • In his visits to most of their rural centres, he did not see any impact of the slowdown. There are talks at the top level, but at ground level, it is totally different.
  • They were a bit conservative in growing their books in the first three quarters. According to him, the next quarter the growth will normalize because the last quarters are generally strong.
  • They have taken a small portion of the reserves (₹200 crore) for additional provisioning due to political uncertainty as there have been talks of political unrest.
  • Normal repayment rates are above 98% on microfinance loans while in Assam it is over 99%. Three weeks ago, the repayment rates dipped to 78% in Assam because people couldn’t reach banks due to roadblocks and curfews. Within two weeks, it came back to above 93%.
  • About 16% of their microfinance loan book is in Assam. In some corners, there has been some political turmoil. They have made the provisions.
  • Penetration of housing loans is still low. They see opportunities in this segment.
  • MSME is a good market. However, there needs to be proper documentation by these businesses for banks to gauge repayment abilities and offer credit. Once awareness of these important aspects of documentation is spread, it’ll turn into a good opportunity.

Consensus Estimate (Source: market screener and Investing.com website)

  • The closing price of Bandhan Bank as on 17-January-2020 was ₹ 481/-. It traded at 4.9x / 3.9x / 3.2x the consensus Book Value for FY20E / 21E / 22E of ₹ 97.5/ 123.0/ 151.0 respectively.
  • Consensus target price of ₹ 641/- implies a Price to Book multiple of 4.2x on FY22E Book Value of ₹ 151/-

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15 Jan

Huge concern among buyers to invest in under-construction projects, says Rajnish Kumar, chairman, State Bank of India (SBI)

Update on the Indian Equity Market:

On Tuesday, Sensex ended up 92 pts higher and ended at 41,952 level and Nifty settled 30 pts higher at 12,362 level. Among the sectors, Nifty Media (+2.1%) and FMCG (+1.4%) were the top-performing indices while Nifty Private Banks closed 0.5% lower. Among stocks, Yes Bank, Indusind Bank, UPL, Reliance and Kotak Mahindra Bank were among major losers on the Nifty, while gainers were Vedanta, Britannia, Hero Motocorp, Zee Entertainment, MnM and ITC.

Huge concern among buyers to invest in under-construction projects, says Rajnish Kumar, chairman, State Bank of India (SBI)

Edited excerpts of an interview with Rajnish Kumar, Chairman, SBI; dated 13th January 2020:

  • SBI is coming up with a product where the bank backs up a builder to whom the bank has given loan and the buyer who buys homes from that builder will be guaranteed his principal no matter what happens to the builder. This is a product is for all Bank’s home loan buyers.
  • The purpose of this product is that there is a huge concern among the home buyers whenever they want to invest in under-construction projects and SBI finances them anyway, so the bank is taking project risk whenever they are giving a home loan for buying any flat in any project.
  • The level of due diligence which will be done in this case on the builder will be much higher. There is a clear advantage because SBI’s commitment on a particular project whether it is the guarantee of funding to the builder or the home loans on that particular project, they would be within the defined limit.
  • This product is SBI’s brainchild and builders are taken by pleasant surprise by this kind of thinking by the bank.
  • SBI has signed up with Sunteck. An MoU has been signed for three projects and for all these three projects due diligence will be done before approving the amount and the projects.
  • SBI is getting huge interest and a huge number of queries regarding this product.
  • The cost of the loan is same as far as borrower is concerned. As far as guarantee fees are concerned that will be charged to the builder. The financing cost for the builder is fairly high in today’s market, so there is arbitrage available and through this, there is a win-win situation for all the three — the homebuyers, the builder and the bank.
  • Home loan still continues to be one of the most profitable product for the bank.
  • SBI loan the portfolio consists of the salaried class which is a major segment for the bank. Among the non-salaried class, SBI is not as active. Among the salaried class, the defence employees, the central government, the state government, the state-owned undertaking employees are the major contributors to this segment making SBI’s market segment different. This is the reason why the percentage of NPA is very low and comparable to the best in the industry.
  • Any major economic slowdown will naturally impact SBI. However, the loan to value ratio is very low, the average is 60%. So in such a scenario where the loan to value ratio is very low and the stability of income is better, SBI is very hopeful of growing their home loan portfolio and at the same time maintaining its quality.
  • In the case of Bhushan Power, as soon as the legal stay by NCLT gets vacated, SBI expects the transaction to be closed within the next couple of days.

Consensus Estimate: (Source: market screener, investing.com website)

  • The closing price of SBI was ₹ 328/- as of 13th January 2020. It traded at 1.3x/ 1.2x/ 1.0x the consensus Book Value per Share estimate for FY20E/ FY21E/ FY22E of ₹ 251/282/324 respectively.
  • Consensus target price of ₹ 377/- implies a PBV multiple of 1.2x on FY22E BVPS of ₹ 324/-.
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03 Jan

2020 will be the best year in terms of recoveries – Rajnish Kumar, SBI

Excerpts from an interview of Mr Rajnish Kumar, Chairman, State Bank of India with live mint dated- 02-01-2019:

Update on the Indian Equity Market:

On Thursday, NIFTY closed +0.8% higher. Among sectoral indices NIFTY Metal (2.7%), NIFTY PSU Bank (+2.0%), NIFTY PVT Bank (+1.2%) closed higher. NIFTY IT closed on marginally negative. The biggest gainers were Tata Motors (+5.1%), Tata Steel (+4.3%) and UltraTech Cement (+4.2%) whereas Eicher Motors (-2.3%), BPCL (-1.0%), and Bajaj Auto (-0.9%) ended with losses.

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  • Mr Kumar says, there is an issue around credit growth particularly in the corporate sector. This year, estimated growth is around 7-8%.
  • Non-performing assets (NPAs) are alright, atheist the recoveries are happening.
  • Term loans are growing. The year-on-year growth is ₹1.7 trillion. Last year, the bank had seen good disbursements and that helped to achieve high credit growth of 13%.
  • He says the pickup in capacity utilization has not happened as of now. It would have been reflected in working capital utilisation if there was any pickup.
  • Speaking about sector growth, he says, only three sectors have proposals with SBI – roads, solar and city gas projects or oil and gas.
  • Speaking about Jet Airways, he says, it has been left to resolution professional. If the RP decides to go for one more round of bidding, then the bank will make one more attempt.
  • The pace of referrals with National Company Law Tribunal (NCLT) will come down. There are not many cases now that are ₹1,500 crore and above.
  • Speaking about steps expected by government or RBI to revive growth, he says, some sector-specific steps are required, telecom issues need to be sorted out.
  • In terms of recoveries, the coming quarters are going to be the best. 2018 was the best year in terms of NPA provisions and 2020 will be best year in terms of recoveries. 2021 onwards things will be normal unless there is a major shock.

Consensus Estimate (Source: market screener and investing.com website)

  • The closing price of SBIN was ₹ 339/- as of 02-January-20. It traded at 1.3x / 1.2x / 1.0x the consensus Book Value for FY20E / 21E / 22E of ₹ 251/ 281/ 322 respectively.
  • Consensus target price of ₹ 376/- implies a Price to Book multiple of 1.1x on FY22E Book Value of ₹ 322/-.
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20 Dec

Corporate credit, investments have picked up pace, says Bank of Baroda (BoB) Executive Director Murali Ramaswani

Update on the Indian Equity Market:
On Thursday, Sensex gained 115 pts and Nifty topped 12,250. The National Company Law Appellate Tribunal (NCLAT) on Wednesday reinstated Cyrus Mistry as chairman of Tata Sons, holding his removal in October 2016 as “illegal” and it is also aid that Tata Sons’ move to turn into a private company from a public limited was unlawful and ordered its reversal. 

Among the sectors, NIFTY AUTO was up by 1% and NIFTY IT by 0.6%. Among stocks, Yes Bank, TCS and Bharti Airtel shares were among the biggest gainers, gaining up to 7%.

Corporate credit, investments have picked up pace, says Bank of Baroda (BoB) Executive Director Murali Ramaswani

Key takeaways from the interview of Mr Murali Ramaswami, Executive Director, Bank of Baroda; dated 17th December 2019:

  • When asked about exposure to Essar Steel, Mr Ramaswami said that they had exposure to Essar Steel but did not make any money because it was cash outright sale.
  • When asked about recovery Mr Ramaswami commented that recovery has been good. As of now, BoB has got about Rs 95,000 mn through National Company Law Tribunal (NCLT). Some have been approved, and some are under approval. Mr Ramaswami is expecting ~Rs 94,500 mn resolutions to happen in next 60 days.
  • Mr Ramaswami stated that Slippages have come down. Normally slippages used to be ~Rs 60,000 mn but in 3QFY20E only Rs 40,000-45,000 mn is expected.
  • The NPA scenario is improving as a lot of NCLT cases are getting resolved. As of Sept-19, Gross NPA (non-performing asset) ratio is at 10.25 and net NPA at 3.91. Mr Ramaswami expects GNPA to reach below 10 by Mar-20
  • Mr Ramaswami commented on loan growth and mentioned that retail segment grew by 7-8% year to date, auto loan is growing at 22-23%, the home loan is growing at around 5-6% and education loan around 11% and other loans around 11-12%. MSME segment has witnessed marginal growth, agriculture grew by 2%.
  • He further stated that corporate credit has picked up as far as Bank of Baroda is concerned. BoB has sanctioned about Rs 320 bn in the last one month out of which Rs 90 bn is already disbursed. In the next 15-20 days, another Rs 200 bn disbursement is expected.
  • When asked about loan growth Mr Ramaswami stated that he expects loan growth to be ~5-6% in December-19 and if the same momentum continues ~11% growth in March-19.
  • He mentioned that the Net Interest Margin (NIM) is at 2.7% domestic and 2.9% Gross. He expects NIM to be above 3% in 3QFY20E as saving bank account grew by 9-10% and bulk deposits are strong. Cost of deposits has come down from 5.14% to 4.46%. 

Consensus Estimate (Source: market screener website)

  • The closing price of Bank of Baroda was ₹ 99/- as of 19-December-19. The consensus estimate for Book Value of Bank of Baroda is not available. 
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05 Dec

Yes Bank’s priority is to create a greater degree of comfort for depositors, clients, regulators

Update on the Indian Equity Market:

On Wednesday, Sensex gained 175 pts and Nifty ended at 12,043. The market was volatile due to mixed global and domestic cues. There was positive news flow on the trade tariff front from the US.

Among the sectors, except Infrastructure and Reality, all other sectors closed in the green. Among stocks, Tata Motors closed with gains of 7%, followed by metals stocks such as Tata Steel, and Hindalco which closed with gains of over 2 % each.

Yes Bank’s priority is to create a greater degree of comfort for depositors, clients, regulators

 Key takeaways from the interview of Mr Ravneet Gill, Chief Executive Officer, Yes Bank; dated 3rd December 2019:

·        When asked about raising the target of capital raising from USD $1.2 bn to 2 bn Mr Gill said that the opportunities for private sector Banks have become much broader and would like to monetize this big opportunity that lies ahead of them. He also stated that it was important for them to convey the message to the stakeholders that Bank is on a stronger and more stable footing.

·        According to Mr Gill, more capital is better than less, and quicker than later. The first priority for the bank should be to be able to create a very high degree of comfort, whether it is depositors, clients or regulators.

·        When asked about the valuation, he shared that the fundamental reason why Yes Bank is trading below book value is that there is a belief that the bank is not fully capitalized. He thinks the fundamental fix to this problem is capital.

·        According to him, once the capital comes in the bank, we will be able to see  that the bank will start to trade at a better multiple.

·        When asked about expecting any dispensation from SEBI on pricing formula, he replied that he won’t be asking for it as he doesn’t think there is a need to do so. The investors who have come in understand that they will need to come in at whatever is the pricing formula and the guidelines around pricing and he thinks they are happy to go with it.

·        He said that the final allotment will be done in the board meeting to be held on 10Th December 2019.

·        He mentioned that they are in discussions with the investors about creating a framework, creating a roadmap, which will facilitate the application to the RBI and for the RBI to take a view. He also clarified that he would not like to prejudge RBI’s views and they haven’t had a conversation with RBI yet.

Consensus Estimate (Source: market screener website)

  • The closing price of Yes Bank was ₹ 63/- as of 04-December-19. The Consensus estimate for Book Value of Yes Bank is not available. 

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03 Dec

Yes Bank: $2 billion funding to be key driver when improving economy creates opportunities

Update on the Indian Equity Market:

Following the weak macro data released on Friday, the markets started the week on a negative note with Nifty falling 7.8 points to close at 12,048. Among the sectoral indices, all but one index, METALS (0.3%) traded higher whereas IT (-0.9%), AUTO (-0.9%) and PSU BANK (-0.9%) led the decline. Within the index stocks, BHARTIARITL (4.1%), JSWSTEEL (2.5%) and RELIANCE (2.3%) topped the chart whereas YESBANK (-6.6%), EICHERMOT (-5.2%) and INFRATEL (-3.2%) took the index lower.

Yes Bank:  $2 billion funding to be a key driver when improving economy creates opportunities

Yes Bank on Friday informed exchanges about raising $ 2 billion by selling new shares to a clutch of institutional investors and wealth managers. Key takeaways from the interview of Mr Ravneet Gill, MD & CEO, Yes Bank  dated 2nd December 2019 published in CNBC TV18:

·        On being asked why the bank is raising $ 2 bn instead of an earlier target of $ 1.2 bn, Mr Gill mentioned that given the increase in the authorised share capital which was approved in the board meeting of August, at the current market price, enables the bank to raise a lot more capital.

·        The market is worried about whether the Reserve Bank of India (RBI) will approve the names of investors. He said that the capital raising is taking place on a preferential allotment basis. There are strict guidelines in terms of qualification of investors.

·        According to the norms, any fund that has sold the Yes bank stock in the last six months is not allowed to participate. The one year lock-in period of the offer makes the domestic mutual fund ineligible. As a result, the bank had to work with limited planned universe. According to him, two things were important before finalizing names of investors; size and partners who were in alignment with the strategy of the banks and who could remain long-term partners for the bank.

·        About the investment offer made by Erwin Singh Braich for $1.2 bn, he said that the bank has done enough due diligence about this transaction. The big question is about whether the investor has the wherewithal to be able to bring in investment of that size. According to him, the investor will be able to satisfy the market on that very shortly.

·        He mentioned that although this is a binding offer, there is no bank guarantee attached to it. But the investors have gone to great length to show their resources of funding and whether they can meet the requirement or not.

·        About the voting rights post-dilution; he said that the investors have no desire for controlling the operations of the bank. The investors have invested based on the thesis that they see private banks in India as a very strong investment opportunity. As a result, even if the voting rights of these investors are curtailed by the RBI, it would not matter much to the investors.

·        The investors have asked for board representation. He defended this demand of investors by saying, “if you are making an investment of that size, then board representation makes sense.” He also added that they are not looking for management rights or control functions.

·        The bank has also received interest from the family office of Citax holdings Ltd. & Citax holding group for an investment of $500 mn. This will need the approval of RBI given the fact that the investment is for above 5% stake. The bank plans to take these bids to the regulator for approval.

·        He agreed that the current investments are done on below book value which is not a good idea for the existing shareholder. But the very reason why the bank is trading at a discount is that the market’s view is that it needs more capital. And the moment that capital comes, the market will see the pickup in valuations as well.

·        On the growth opportunities for the bank, he said that the country has hit the bottom in terms of economic macros and from hereon, there will be a pickup. This will create a lot of opportunities for the bank. The dislocation in the whole NBFC space and public sector banks expanded the addressable market for the bank. With the capital that is coming, the bank could grow at a very robust pace.

Consensus Estimate (Source: market screener website)

  • The closing price of Yes Bank was ₹ 64/- as of 02-December-19. The Consensus estimate for Book Value of Yes Bank is not available. 
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