The latest move to start afresh is positive, but analysts are cautious. “We’re worried about YES Bank’s asset quality as the entire banking and non-banking financial space is feeling the brunt of Covid-19 crisis,” says an analyst.
With the economy expected to contract 5 per cent in FY21, analysts are sceptical of YES Bank’s 15 per cent-plus exposure to severely affected sectors, such as real estate, hospitality, travel, and tourism, and to some extent retail. As much as 35-45 per cent of its corporate and MSME (micro, small and medium enterprises) book was under moratorium as of April. Once the moratorium is lifted, some of it may turn bad. Even after high provisioning, FY20 ended with the net NPA ratio of over 5 per cent.
Some experts say the bank may fall short of growth capital, even after the FPO. Its total stressed book as of FY20 may not leave significant capital to grow. According to ICRA’s recent rating downgrade report on YES Bank, there is a likelihood of high credit costs owing to the weak operating environment, coupled with high overdue advances (SMA, or special mention accounts), which stood at 7 per cent of standard advances as of March 31. But, according to Kumar, “The post-FPO capital would also take care of our growth for at least two years.”
Among positives, the share of corporate loans is down to 56 per cent in FY20, from 66 per cent a year ago; the management aims to bring it down to 40 per cent. Some reduction in the moratorium book and improvement in retail deposits have been seen since April.
Is pricing really cheap?
On a reported basis, the FPO is priced below its FY20 book value, and the discount to current price seems to partly capture future pain. But, on an adjusted basis (book value minus net NPAs), the FPO is priced at above 1x. Sanjiv Bhasin, director at IIFL, says: “It is a fair opportunity for medium-term investors as the FPO would largely address its capital concern.”
Not all experts are convinced. “At a time when strong and growing banks
are available at attractive valuations, putting money in YES Bank
makes little sense,” says an analyst.
For existing investors, experts say selling part of their shareholding at current price and re-entering via FPO may lower acquisition cost.