The uncertainty around Yes Bank's fund-raising programme has begun to stoke concerns around the lender's ability to continue as a going concern, with at least two analysts now raising the possibility of the bank being taken over by the government or a state-owned entity.
Shares of Yes Bank plunged 15.3% on Wednesday to close at a near two-month low of Rs 42.80. The stock has come off 76.5% so far in 2019. Nomura on Wednesday said the investors identified by Yes Bank are not likely to obtain all clearances required for a deal to go through. If the bank is unable to cut a deal and raise the full $2-billion it plans to, it could turn into a systemic risk, Nomura said in a report. "As of FY19, Yes Bank’s loan book is 30-130% of loan book of large banks (ex-SBI) and 11% of SBI’s (State Bank of India) current loan book. Given Yes Bank’s asset size and quantum of stressed loans in the bank (Rs 50,000 crore), there are likely to be few merger options excluding SBI, in case the bank is not able to raise sufficient capital," the report said.
Analysts at Macquarie Capital Securities (India) said if Yes Bank is unable to raise the required capital in another six months, it could become a risk to the financial system. "Note that when a bank collapses, the clearing system comes to a halt and hence the contagion impact of the collapse of a bank is far higher than that of the collapse of NBFCs in our view," Macquarie said, citing older instances of bailouts of private banks through forced mergers by state-owned banks in India.
On Tuesday, Yes Bank had said it is "willing to favourably consider" a $500-million offer from Citax Holdings even as a $1.2-billion offer from Erwin Singh Braich and SPGP Holdings remains under discussion.
Analysts and market watchers have roundly panned the lender's choice of the relatively-obscure Canadian citizen Erwin Singh Braich, backed by Hong Kong-based fund SPGP. The latter is known for having backed out of the bidding process for Reid & Taylor under the corporate insolvency resolution process (CIRP). The two parties together had offered to invest $1.2 billion-over half of Yes Bank's planned fundraise of $2 billion.
Of the rest, $500 million was to be brought in by Citax Holdings, whose name had also popped up in the course of the insolvency process for Nagarjuna Oil. Citax, too, failed to furnish a bank guarantee of Rs 100 crore for the bid amount, a recent report by Jefferies said.