Yes Bank has had to brave inclement weather on the Street this past week. Regulatory and corporate governance issues and exits of two directors have made matters more complicated for the bank. In an interview with Shilpy Sinha and MC Govardhana Rangan, chief executive Ravneet Gill details the revival plans at the lender that has lost 65% of its market value in a year. Edited excerpts:
Yes Bank seems to have plunged into turmoil yet again with two directors’ exit. What does the future hold?
I will not use the word turmoil. Every organisation in its lifecycle has a reset. I think this is the reset phase as far as Yes Bank is concerned. In some ways, these are expressions of transition that is happening. It is re-characterisation of the bank that is happening. This is not just being driven by factors that were thrust upon the bank but also because of changes in the financial market, competitive landscape and regulations. If you look at the changes in NBFC and mutual funds over the last 8 to 9 months, it has been challenging times. In our case, it gets magnified.
How do you fix this?
With respect to directors resigning, we need to show more stability. We have R Gandhi appointed by RBI on the board. He can provide important insights. Some expressed concerns on declining share price at the AGM. In the same breath, they said if you are looking to raise capital, do a rights issue and we will subscribe to it. This shows the goodwill the bank has despite what may or may not have happened.
What’s the priority now?
The first priority is management and board stability. Second is asset quality. Market looks at what happened when they (other banks) came up with watch lists. In our case, there are a handful of names that are facing liquidity issues. These are not names that are in one industry, or sector. There are resolutions underway. In some cases, it is asset sale. It may not be visible to the market. The asymmetry of information is creating the confusion. Concerns around asset quality are overblown. The reason for this is not enough resolutions. When resolution is happening in NCLT, the dissemination of information is better.
What will be the worst case NPA scenario? About 10-12%?
It will be nowhere close. Currently our numbers are not being trusted. It is a question of once bitten twice shy. It has nothing to do with our numbers. They have seen lightning strike twice, and the normal tendency is if it has struck twice, it can strike a third time. The understanding around the issue has to be more nuanced. In the March quarter, our sub-standard book went up from Rs 6,000 crore to Rs 20,000 crore. When you see a three time increase, it is of great concern. What needs to be understood is that there are three or four names that made Rs 6,000 crore go to Rs 20,000 crore. They have issues around liquidity but have assets that have equity value in them. Through divestment or stake sale, they can come out of illiquidity.
How much of the Rs 20,000 crore sub-standard assets do you see falling into NPA?
We had said Rs 20,000 crore is substandard and of this Rs 10,000 crore is watch list. On the Rs 10,000 crore watch list, 20% is contingency provision. We provided Rs 2,100 crore of contingency provisioning. My sense is loss given default will be lower than that.
For other lenders, it happened to be cyclical issues. For you, the problem is individual default. Are the troubles due to poor underwriting practices? Some even do not rule out fraud…
Poor underwriting standards will have to be seen in the overall portfolio. Historically, bank’s provisioning has been very strong. Risk management was of a very good order. The issue that we have to understand is when the NBFC crisis happened, there was tightening of liquidity. Suddenly, we realised refinancing was not so easy, risk appetite came down. These companies got caught. They become more vulnerable to the financial market dislocation than the others. Because of mutual fund crisis, the whole promoter funding came under pressure. Suddenly, the operating company was doing well but the valuation was reflecting promoter distress. It was a combination of NBFC sector, promoter funding, and the infrastructure financing crisis.
Will there be any nasty surprises?
To the best of my knowledge I do not see anything lurking out there, which has not been highlighted or which can move the needle.
The market is also talking about interlinkages among Yes Bank, DHFL, Indiabulls and the ADAG group. Are there interlinkages?
I had heard the same thing. I spoke to both our auditors and concurrent auditors and whether they had looked at this aspect closely enough. Both said they have gone really deep and found absolutely no linkages.
You have been looking at raising equity, but investors have been hesitant. What is the scene now, including private equity?
Private equity is an external validation that somebody has looked at stuff which is not in public domain. It becomes source of long-term capital and in some ways they can bring best governance practices by virtue of being invested companies. We are looking at both public market and private equity transactions.
How do you see Rana Kapoor’s efforts to return to the board, although not in an executive role?
I will dismiss it as a speculation. If you look at it from the point of view of being the largest shareholder, it is in his interest to see a stable board and a stable institution. I don't see him doing anything that will destabilise that.
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