SA RI GA MA PA of #YesBank

SA RI GA MA PA of #YesBank

There was always a person who stood on behalf of big corporates and business houses, his name is Rana Kapoor, the king of bad times at Yes bank. Many industrials have lived for their good part in the decade ended. The king of bad times, Rana Kapoor turned out to be “the lender of last resort” (I know, its RBI) for those who required big capital with fewer compliance problems. 

The self-proclaimed ace corporate banker and his pedigree was the reason for that. After stints at Bank of America and ANZ Grindlays, where he was involved in loan syndication and later investment banking, he joined hands with Ashok Kapur and Harkirat Singh and created Rabo India Finance in 1998, which was an NBFC. These three individuals would hold 25% of the equity, with the other 75% with the Netherlands-headquartered Rabobank. During 2003, all three have sold their stakes in NBFC resulted in gearing up for a banking license. With Kapur’s moderate approach to banking which convinced the RBI to grant them the license in the same year ( 2003).

The IPO of Yesbank and it’s listing

Everything went well at Yesbank until the one ( Kapur) was killed in a terrorist attack at Mumbai in 2008. From there on, it was the only one Kapoor, who becomes the face of Yesbank and decisions were quite faster with no checklist on sanctioning loans to the big corporates. 

It was in 2016 when RBI has tightened to screen the bad loads at banks, were asked to submit the quarterly reports on borrowings exceed Rs.50 Million and more. This resulted in the exposure at Yesabnk books of accounts. The gross NPAs reported were reports as 7.49 Billion, whereas the actual was at 49.25 Billion rupees. The other noticeable outcome was during the last general elections, the RBI has noticed that there was a transaction worth 6.3 billion rupees through unsecured NCDs. Post this outcome, the said 6.3 billion was secured by an AMC ( RNAM) by offloading pledged shares. 

Another incident was lending of Rs.1.5 billion to Avantha Group’s chairman- Gautham Thapar. That was defaulted and recovered the bungalow which was the collateral then. This bungalow was picked up by the Interglobe Aviation’s co-founder, Rahul Bhatia, but Kapoor, then conventionally managed to get the sale to himself. This lead Thapar to complain about the inappropriateness of the process, and the Government was already unhappy with the business at Yesbank, which lead to the removal of Kapoor from Yes bank. 

The scenarios that cautioned the fall 

  • Yesbank’s high-risk exposure 

In the list of high-risk borrowers, ICICI Bank and HDFC Bank have an exposure of 22.7 billion and 12 billion, respectively, with Axis Bank at 18.9 billion. Here, Kotak Mahindra Bank is the most conservative with 3.7 billion. By contrast, Yes Bank’s exposure is at over 102.6 billion, only second to SBI’s just under 150 billion. Within this, Yes Bank’s lending to Anil Ambani’s finance businesses stands at 28.5 billion, with Axis Bank, among its peers, having the largest exposure at 6.4 billion, with ICICI Bank and HDFC Bank together at 7.6 billion. The total exposure of Yes Bank to ADAG across its businesses is a stupefying 130 billion. Yes Bank’s exposure to Cox & Kings, again a high-risk borrower in Jefferies’ report, is 13.4 billion, with only Axis Bank among its peers having lent any money (2.1 billion). SBI from the state-owned segment has an exposure of 6.2 billion to this entity, which is less than half of Yes Bank. 

  • Gradual fall of Kapoor’s holding after offloading pledged shares by RNAM
  • Caution from the Ex-CFO Rajat Monga

The government on Thursday night placed Yes Bank under moratorium and capped withdrawals for a month, while the Reserve Bank of India superseded its board citing deteriorating financial position.

The present problem 

  1. For Mutual funds and its holders

Schemes of Nippon India Mutual Fund have the highest exposure to the debt of struggling Yes Bank Ltd. The asset manager owned the bank’s bonds worth Rs 1,806 crore as of Jan. 31, 2020,

 In all, 32 debt schemes across mutual funds had an exposure of Rs 2,848 crore towards Yes Bank, as of Jan. 31, 2020.

Source:RupeeVest

On the equity side, exposure to Yes Bank is mostly in index funds because it is a part of the Nifty 50 Index (it is scheduled to exit the Nifty on 27th March). The largest exposure as a percentage of assets is in DSP Equal Weighted Nifty 50 Fund at 1.60% of assets.

Since it is also part of banking ETFs, the stock is present in many banking ETFs which track such indices such as ICICI Pru Private Banks ETF (1.33% of assets) and Tata Nifty Private Bank ETF (1.3% of assets).

Source:RupeeVest

Several mutual funds have also stopped accepting redemption requests from their schemes into Yes Bank accounts 

Nippon India Mutual Fund which has the largest exposure to Yes bank has written off its entire exposure to Yes Bank. Inflows into Nippon schemes with Yes Bank exposure have also been restricted to ₹2 lakh per investor.

Hence, investors should factor in this likely capital erosion in their financial goals and adjust their savings and investment plans accordingly.

2. For direct equity holders 

Have no other option, other than accepting a capital erosion. 

A simple representation of events at YesBank share price

Look at the price action that cautioned if you are an Investor in Yesbank shares

There were two cautions to Investors that offered “Exit”
The day YesBank share price touched a Historical low @5.65 and bounced back

What’s the way out now 

A day after superseding the Rana Kapoor-promoted Yes Bank board and capped cash withdrawals at Rs 50,000 (Rs 5 lakh in exceptional situations), RBI on Friday came out with the “draft reconstruction scheme” under which SBI will bring in Rs 2,500 crore for a 49% stake in the crisis-ridden private sector bank.

And the saga is still continuing …..

And for Investment and trading purposes, the stock offers good opportunities now and then. You all know what I am talking about now. Seriously, I have a good trading opportunity if not you. Have a nice trading opportunity.

Signing off…

Santhosh Kumar V

Note: All the above statements and comments are put across based on the information that is already available.

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