ET Markets
12,118.15-0.85
Stock Analysis, IPO, Mutual Funds, Bonds & More

We will not raise capital at any price, we will wait for prices to correct: Ravneet Gill, YES Bank

Last Updated: Oct 03, 2019, 08.08 PM IST|Original: Oct 03, 2019, 03.50 PM IST
0Comments
100 % confident in YES Bank's ability to raise capital: Ravneet Gill clarifies rumours
100 % confident in YES Bank's ability to raise capital: Ravneet Gill clarifies rumours

Highlights

  • Once the capital is here, we should very comfortably be growing in the 20s.
  • I feel 100% confident that this capital will get raised.
  • Sources who comment irresponsibly and casually on banks must be punished.
Capital raising is the number one priority and we will look for the right opportunity to go to the market and raise the money that we are looking for. We have been talking to large global PE funds, some Indian family offices and a couple of strategic investors, says Ravneet Gill, CEO & MD, YES Bank. Excerpts from an interview with ETNOW.

There is a fear in the market around your ability to raise capital. Where are you on that? Are you confident that within the next few weeks you will be able to raise sufficient capital?
I feel 100% confident about the bank’s ability to raise capital. I have mentioned this previously as well, that there are three constituencies of investors that we are speaking with. They are the large private equity funds, international ones. We are talking to a couple of Indian family offices and then there are a couple of strategic investors who have shown a lot of interest in investing in YES Bank. All three put together, I have no doubt in my mind that we will be able to raise all the capital that we need to be able to grow from here on.

You talked about timing. I am very clear in my mind and we as a management team collectively are very clear that we will not go and raise capital, just at any price. The current price and the share performance has a complete disconnect from these underlying operating soundness of the bank, the liquidity and the stability of the bank. We would want that to get corrected and I am sure that the markets will very quickly comprehend the fact that the recent drop in the share price had nothing to do with the operating metrics of the bank.

As the share price picks up, we will further expedite our capital raising efforts. Obviously, we have kept the regulator very closely informed about the reference to raise capital. They have been very supportive as indeed has been the Ministry of Finance and I would like to reiterate once in for all that I feel 100% confident that this capital will get raised.


A marked recovery is coming in YES Bank on clarification that you made yesterday. October 2 being a market holiday, it got well absorbed by all equity players that all the pledged shares have been unloaded. A big overhang was lifted from your stock. Having said that, the stock is back above Rs 40 per share price. What according to you is the fair value where you think you could raise capital?
It was a known fact and it got more widely disseminated in that when that pledge got invoked and the share started to get sold, from that stage to now, it literally halved. Over a period of time and this was a massive overhang as far as the market was concerned, if the pledged shares were to come into the market and the oversupply could break the back of the stock which in some sense happened, it is very heartening and gratifying to see that the market absorbed that very quickly and was able to segregate and isolate the reason for the drop in the share price.

We had an analyst call this morning where we provided more perspective on that in terms of all the objectives that we had set for ourselves at the end of the last financial year in terms of which businesses we wanted to grow, where we wanted to invest, what we wanted to do with the asset growth and in terms of reshaping our liability profile and building some of our flow businesses in a more robust fashion.

We provided some directional guidance with respect to how those businesses are growing and this has obviously given a lot of comfort to the market. Liquidity has not been an issue for us. There was obviously some concern with respect to internet banking being down but it was a system-wide phenomena, coming out of issues with regard to some of the service providers as well as the sales that the e-commerce companies are having. This led to a lot of load and the system not being able to take that. All that has got restored. Depositors, investors are now feeling very comfortable with the overall sound and stability of the bank.

What do you think is the fair value of YES Bank share price?
We all know that what the book value of the stock is. Subsequently, some media and research reports are trying to estimate what is the size of our stress book, what is our exposure to certain counterparties and I have to tell you that many of these assumptions that have been made are actually incorrect.

I feel very strongly about this issue that one can write so casually about the institution of public trust which effectively banks are. The book value of the stock is very clearly demonstrated but I would like to step back and in the interest of answering your question also say another thing. The financial services will undergo a very significant change going forward.

One of the things which investors and analysts should be very mindful about is that banks which are really future ready should be able to embrace the future and harness it. I would like to believe that there is not another bank in the country which is quite as future ready as YES Bank is and I am happy to go into more details with respect to how we will adapt to that changing landscape and how we will benefit from that from a cost, revenue, a footprint and also a client acquisition perspective. We should just be able to put those numbers into context.

People talk about degrowing and people talk about slowing down and being in consolidation mode. In the last quarter, we added 180,000 new clients which is the highest ever we have done. In terms of new fixed deposits to the bank, we were up 39% quarter on quarter. That shows two things; one, we had talked about making our liability franchise a lot more granular and second to be able to demonstrate to everybody that as far as depositors and clients are concerned, the faith in Yes Bank remains unshakeable.

So what should be the right price for YES Bank is not for me to say. But certainly, the current price is not anywhere reflective of even the franchise value of this bank.

You raised capital a couple of weeks ago and it was at Rs 80 plus. Can I say that you are open to raising capital below that or would you wait for the stock price to stabilise and then come back in the market to raise capital?
We will be very sensitive to existing investors and the price at which they have raised stocks. Equally, what we need to do and I think all stakeholders are absolutely united in their perspective on that is that we should do whatever is in the best interest of the bank and that in many ways will determine the timing and the amount of capital that we end up raising.

As I said earlier, there are two things: one, we will not raise capital at just any cost and the second is that the bank over two quarters has very clearly demonstrated the ability to be able to treat capital organically. We have a lot of reserves on our balance sheet, where we can dig deeper and continue to get capital organically for as long as we think we need to and when we think the price is right for a dilution.

Having said that, clearly from my perspective, capital raise is the number one priority and we will look for the right opportunity to be able to go there in the market and raise the money that we are looking for.

You are adopting the approach of conserving capital to grow the book. Can you give us some sort of an indication as to where you see your overall book growing and what size you would be comfortable with and what the trajectory is here?
In the last two quarters, we have effectively scaled back our wholesale book somewhat and then be able to put that more into the more granular businesses like retail and the transaction bank, both of which have registered very good growth even in the quarters that has just ended.

It has been more a question of calibration in terms of making our overall balance sheet a little more granular and the overriding factor with regard to our strategy over the last two quarters has been to be able to conserve capital which we have done. But my own sense is that once the capital is here, we should very comfortably be growing in the 20s.

When do you think the turn of YES Bank will come? I respect that you are in a silent period and so we would not get into specifics but in my book, the turn is when bad loans start becoming good loans. Lots of banks have started seeing upticks in the recovery process. How far are we from there for Yes Bank?
One of the things that the bank did in the past and did very successfully was a lot of asset backed lending. When leverage is low and credit markets are easy, disposing monetising assets becomes a lot simpler and to that extent, you can service the debt. But in an environment that we have been through, the whole process in terms of recovery and resolution has been slower than anticipated and I will be the first one to admit that.

But I also get the sense that the announcements that came on the back of the tax cuts from the ministry of finance, has completely changed the headline as far as India macros are concerned and it is my very strong belief that the government is going to become a very big facilitator and enabler to make sure that the macros recover very quickly.

When the macros recover very quickly, a lot of the issues that we are facing with respect to liquidity in the markets will change. This is very critical from Yes Bank’s perspective because as I have often said, unlike some of our competitors who went through this cycle and will essentially catch up with a very large stress book which was very granular in nature or which was very sectoral -- cement, steel, power. In case of YES Bank, it is a question of just a handful of very large exposures which are currently facing illiquidity.

The improving macros which I now see have started showing uptick, will enable liquidity to come back into the system and that remains one of the key objectives for both the regulators and also the government and should speed up resolution. Although the recoveries were slower in the quarter that has gone by and the resolution is slower than what we may have anticipated or expected, I expect that to pick up a lot of pace this quarter.

Having said that, when does the turnaround happen? My sense is that that bounce back has commenced as far as Yes Bank is concerned.

Give us a sense of how as a bank you are adopting the new technologies?
The way we are looking at it right now is that in financial services, the single biggest and the most important thing really is how do you assess and manage risk, perhaps more than in any other industry. We are beginning to see that digitalisation, the entire data aggregation with the right analytics in place is playing a huge role with respect to that. The fintech boom that is happening in this country is really being built on very robust risk engine. It is enabling banks to manage risk in a more real time online basis. It is enabling them to embrace client segments and business segments that they have historically stayed away from.

It is bringing down the cost of client acquisition simply because now you do not have to build large brick and mortar branches and all the capex and opex that goes with that and that a lot of your SME, MSME, retail strategy could going forward be built on digital.

So why is YES Bank differentiated from a lot of competitors? The reason for that is first and foremost, the bank was an early adaptor and invested in technology ahead of time.

Second is that as the world moves more to open source leadership and technology, it is not just going to be a function of investment, it is going to be a function of building smart partnerships and some of the partnerships that the bank has built over a period of time is just absolutely outstanding.

Third, if you see operating systems, right now the only bank in India which is operating is actually YES Bank. The ability it gives you in terms of throughput and analytics is multi-fold over any other system and right now we are the only ones with that and to that extent for many of the aggregators, we are now becoming almost a credit bureau of sorts. Pass on the data to us and we provide the credit metric around that. I think that is very critical.

But the most important thing which is the fourth point. Given the size of the market, how desperate the market is, building market share has been very slow. One of the things that technology will change effectively speaking is that the winner will take all and if you are ahead of the curve and on the right side of the digital divide, the ability to grow market share in a manner which is much more secure -- be it from KYC or AML client on boarding perspective, branch network, risk assessment and all the processing that happens, it will become much more robust, quicker, more time and cost efficient. The point around winner take all will become a reality. If I take a very composite view on all these factors, my sense is that right now there is no real competition for Yes Bank.

RBI sources are indicating that there is no reason to panic when it comes to YES Bank’s stability. It is only rumour mongering on Rana Kapoor’s pledged shares that led to the slump. It is only a false rumour that YES Bank is being merged with another PSU bank. What would you like to tell your shareholders?
If I had to send out a message to the regulator and the government, I would like to express my gratitude. It has just been incredible how supportive the regulator has been, how supportive the government has been at the highest levels. They have all said to us very clearly and unequivocally that we would like a very strong independent YES Bank. We want YES Bank to come out into the market, build market share, show lot of credit appetite, do a lot of lending and growth is something that YES Bank has been historically known for.

They want the bank to be able to assume that character all over again. So they have been very supportive and I did pick up the feed with respect to the channel, saying that sources from RBI told them that the bank is very stable and very liquid. Our media release yesterday was basically reinforcing those messages.

In an environment where actually most banks have seen a decline in CASA, our CASA quarter on quarter actually went up from 30.2 to 30.8. Our retail deposits went up. I mentioned to you the increase in our fixed deposits, the number of new accounts that we have opened. By and large, depositors and clients have been very supportive.

They see that the bank is absolutely safe and sound. It is unfortunate that there has been so much commentary and a very irresponsible commentary on social media. The only point other than gratitude that I would like to bring to the attention of the regulator and the government is that they should take a much stronger view and some punitive action be taken on sources who comment so irresponsibly and casually on banks.

Also Read

YES Bank to raise capital at the earliest: Ravneet Gill

YES Bank expects to get in capital before the year end: Ravneet Gill

Capital for us is for growth: Ravneet Gill, CEO, YES Bank

Yes Bank in talks to raise capital: CEO, Ravneet Gill

I don't believe in the possibility of capital not coming in: Ravneet Gill, YES Bank

Comments
Add Your Comments
Commenting feature is disabled in your country/region.

Other useful Links


Copyright © 2020 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service