A sage used to go to a riverbank each day to offer his prayers and take a bath. One day, a scorpion bit him while he was entering the river. He felt that painful sting, but at the same time saw that the scorpion was drowning. The sage couldn’t resist seeing a living creature die in front of his eyes. So, he lifted the scorpion in his hand and tried putting it on the shore. But, the scorpion bit him again! Once again the scorpion was drowning and the sage helped it, but the scorpion stung again and again.
A man was observing this series of events. He asked the sage, “Why do you keep helping the scorpion when it stings you every time?” The sage replied “It’s about character. If the scorpion maintains its character and keeps stinging, I’m a sage, and it’s my character to help others come what may.” Now, we definitely won’t say that Yes Bank is a scorpion and SBI is a sage but, you would be able to relate. YesBank is once again getting investment from SBI for its FPO. Read on to find out more about this development.
The base price has also been set. But, the thing that matters the most here is SBI’s intervention. The
State Bank of India is all set to infuse Rs. 1760 crores in this
Follow-on Public Offering. Yes Bank is envisioning to raise 15,000 crores from this FPO. The interesting part is that if all this goes through as planned, the stake of SBI in Yes Bank would be reduced considerably.
You would surely remember the Month of March when Yes Bank was nearing a collapse. SBI came acted like an angel for Yes Bank and saved it by infusing more than 6000 crores to acquire slightly more than 48% stake in the private lender. Even the private banks followed suit and acquired a stake in Yes Bank. But, did the things improve then? Absolutely not. The ledger of the bank has been stressed like ever and the moratorium added to its woes.
Time and again Yes Bank has become a topic of household discussion.
This time around, it is looking to raise funds ranging from ₹ 10,000 cr to ₹ 15,000 cr via a further public offer (FPO). Even as many banks in India have been raising funds since the advent of COVID-19, Yes Bank’s case is different. So, what is it up to? Well, as we know, the government can't allow major banks to go belly up because it can adversely impact the entire economy. That's why banks are required to conform to Basel III norms so they can stay resilient during economic and financial crises.
https://inquisitordev.blogspot.com/2020/06/zerodha-list-of-all-charges-and-taxes.html
One such norm is to maintain a total capital ratio of 11.5%. While 8% of this is tagged as Tier 1 capital (consisting of equity and reserves), the remaining 1.5% is Tier 2 capital (comprising hybrid instruments and supplementary reserves). But Yes Bank’s total capital adequacy ratio in the Mar quarter was just 8.5% and its core Tier 1 capital was only 6.30%, way below the minimum requirements. This means that Yes Bank has been breaching the regulatory capital norms for quite some time now.
That’s why, Yes Bank is raising funds via FPO, whose floor and cap prices are ₹ 12 and ₹ 13 per equity share, respectively. The proceeds of this offer are crucial for Yes Bank to maintain an adequate capital ratio and also overcome its past few troubled years. Notably, SBI, the lead investor in Yes Bank, held a ~48% stake in Mar and is mandated to hold a minimum of 26% stake in Yes for at least 3 yrs hence. While this sorts things to an extent, the FPO proceeds mean good news as they would help Yes Bank meet its capital requirements for the next 3 yrs and keep it from returning to the market for more.
One important question – Why does SBI save failing banks?
Remember the story that we told in the beginning. Although SBI is not a saint by itself, it is forced to be a saviour by either government or RBI or both. We live in an economy that is not a capitalist one and therefore, the PSU bears the responsibility to save a failing bank even if that has repercussions for itself. For example, the capital that SBI infused earlier and is infusing now could have been easily used to benefit the shareholders. But, it is being used to save a failing bank.
In the developed economies, failing banks are not saved in this way.
This is the reason their economies grow fast and become huge. The same capital is used to develop infrastructure instead of using it to rescue a financial institution that’s collapsing. Although, neither of these options i.e. saving the bank or letting it collapse is completely right or wrong. Both ways have their set of reactions. Coming back to the FPO, there’s no guarantee that after a successful FPO, Yes Bank would return to the growth track. In fact, it may be better if SBI increases its stake in Yes Bank and takes proper ownership. But, to know what exactly would happen we’ll have to wait for a few days.
YES BANK FPO DETAILS
YES Bank’s Rs 15,000 crore follow-on public offer (FPO), is set to hit the market on July 15, and is priced at Rs 12-13 per share. The Floor Price is at Rs 12 per Equity Share with a Cap Price of Rs 13 per Equity Share (a discount of Rs 1.00 per Equity Share for eligible employees).
View: On the Adjusted Book Value basis, the issue is priced at above 1x FY20 Book Value. The bank’s adjusted Book Value as on Mar 2020, was at Rs 10.4 (adjusting NNPAs of Rs 8623 crores from the restated Networth) hence the valuation is not cheap. The bank had posted a net loss of Rs 16,432 crores and presently had CET1 of 6.3% which has necessitated the capital raise.
HAPPY READING!
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Really great blog ! I bookmarked your blog to read your posts.Thanks for sharing
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