MUMBAI: The stake of Yes Bank’s largest shareholder, SBI, is likely to come below 26% after March 2023. This is because of the conversion of warrants issued to private equity investors Carlyle and Advent, which have invested around $1.1 billion in the private bank for a combined stake of just below 20%.
Yes Bank would also see an improvement in financial ratios for the current quarter with the transfer of Rs 48,000 crore of bad loans to JC Flowers asset reconstruction company, which it said has been concluded.
Speaking to TOI, Yes Bank MD & CEO Prashant Kumar said that the $1.1-billion capital infusion is meant for growth, but it is also a reflection of the confidence marquee investors have in the bank. “SBI’s current holding has come down to 26.1% and, after the conversion of the warrants, it will come down to 24%. That was why part of the investment was in warrants,” said Kumar.
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Carlyle and Advent’s $1.1-billion investment is for the purchase of shares and warrants. The warrants are priced at a slight premium to the shares because the exercise would happen post-March 2023. SBI, which played a key role in bailing out Yes Bank, must hold at least 26% until March 2023, according to the government-approved reconstruction plan.
The country’s largest bank’s original 48% stake has come down due to fresh equity issues, but the value of its investment more than doubled in three years as Yes Bank’s shares are trading at Rs 21.2. “Given our relatively smaller balance sheet, we expect to grow 20% for the next four to five years. Depending on how the overall economy grows, we can calibrate our expectations,” said Kumar.
Terming the equity issue as a completion of the bank’s transformation, Kumar is bringing about a cultural change. “We need to remind ourselves that we are a regulated financial entity and cannot work like a hedge fund or a private equity fund. The most important part will be adhering to basic risk-management principles in terms of diversification. You can be aggressive, but you should not compromise on risk management,” said Kumar.
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Kumar said that the bank would service the large equity base by focusing on return on equity (ROE) and return on assets (ROA). “The expected ROE of 14-15% will happen when we reach ROA of 1.5%. It is tough, but we can do that, and we have demonstrated it in the past,” said Kumar. Yes Bank has succeeded in monetising its digital capabilities by growing its current account on the back of digital services. “Around a third of our current account deposits, growing at 30%, comes from our transaction banking and digital solutions,” said Kumar.
He said that the deposit growth would continue to outpace credit growth for the banks. In addition, the bank’s credit-to-deposit ratio will improve and come below 90% because of the sale of bad loans to the asset reconstruction companies.He said the bank would need to expand its presence to grow its MSME & retail business but could grow its presence without significantly increasing its 1,100 branches’ network.
