(Bloomberg) -- Yes Bank Ltd., the Indian lender whose shares have lost more than half their value this year, now faces the challenge of raising capital after bad loans and provisions surged.
News that the bank’s capital buffers have tumbled to the lowest allowed by Indian regulators has reinforced the urgency of Chief Executive Officer Ravneet Gill’s plan to raise $1.2 billion to shore up its balance sheet. But that task will be complicated by another share price plunge on Thursday.
“The No. 1 priority for Yes Bank is to raise capital,” said Jaikishan Parmar, an analyst at Angel Broking. With the shares in freefall and the common equity Tier 1 ratio touching the minimum 8%, the lender’s negotiating position with potential investors has been eroded.
“If they cannot raise capital by September and their asset quality deteriorates further then they will lose bargaining power further,” said Parmar.
Yes Bank is grappling with a crisis among shadow lenders because of its sizeable exposure to the cash-strapped industry. The issue has complicated Gill’s efforts to restore asset quality after a dispute with the Reserve Bank of India under his predecessor for not adequately disclosing problem loans.
However, in a television interview Thursday with CNBC-TV18, Gill said concerns about problem assets have been “overdone” and signaled that the worst is over.
“If you see the issues that need resolution, they are just a handful,” Gill said. Each loan that is dealt with “increases the upside materially, which has obviously made them very engaged, very interested,” he said, referring to the investors the bank is talking with to raise capital.
Gill said last month that he plans to raise $1.2 billion over 18 months to bolster capital through a mix of public and private share sales.
The shares slid 12% at 2:06 p.m. in Mumbai, taking this year’s decline to 52%. The stock is the worst performer on India’s benchmark Sensex index this year.
What Bloomberg Intelligence Says
Yes Bank’s profitability could face pressure due to capital constraints hampering revenue growth, further aggravated by margin pressure and elevated provisions.
--Diksha Gera, bank analyst
Click here to read the research
The latest drop followed the bank’s disclosure late Wednesday that net income was 1.14 billion rupees ($16.6 million) in the three months ended June 30, missing the 1.48 billion rupee average analyst estimate.
The results “turned out to be far worse than what we had anticipated,” Jefferies analysts led by Nilanjan Karfa wrote in note, cutting their share price target for Yes Bank to 50 rupees from 80 rupees. “Capital infusion is of utmost urgency.”
Other Key Figures
Yes Bank set aside 17.8 billion rupees as provisions, up from 6.26 billion rupees a year earlier but smaller than 36.6 billion rupees three months ago
Gross bad loans as a percentage of total lending widened to 5.01% from 3.22% in the previous quarter
- Capital adequacy ratio was at 15.7% from 17.3% a year earlier and 16.5% in the March quarter; core equity Tier 1 capital was 8% versus 8.4% three months earlier.
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