India’s Yes Bank lays out a roadmap for growth after raising $1 billion

A customer tries to visit a branch of Yes Bank in Mumbai, India, March 6, 2020. REUTERS/Francis Mascarenhas

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MUMBAI, Aug 4 (Reuters) – Two years after India’s central bank had to step in to take control of Yes Bank to calm panicked depositors and stem systemic risk, the lender is aiming to expand its loan portfolio and to acquire smaller rivals to revive its business, said its chief executive.

The midsize lender’s (YESB.NS) expansion plan comes after it raised $1.1 billion last week by selling up to 10% stake to Carlyle Group and Advent International. Read more

The fundraiser marked a rare vote of confidence in Yes Bank, which had to be taken over by the central bank in March 2020 after months of deteriorating finances and allegations of mismanagement.

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The bank also managed to raise capital, its first since July 2020, at a time when the outlook for the banking sector in many overseas markets has darkened due to slowing economic growth, which is expected to weigh on asset quality. and demand for loans.

Yes Bank plans to increase its loan portfolio by 15% in the fiscal year ending March 2023, as it focuses more on mortgages, auto loans and loans to small and medium-sized businesses, a said CEO Prashant Kumar.

Its loan portfolio grew by 8% in the last financial year, slightly below the 9.6% growth recorded by India’s banking sector, after contracting in the previous two years.

“We will definitely grow (the loan portfolio) more than the industry, but we wouldn’t want to make a mistake,” Kumar told Reuters, referring to the bank’s previous rapid credit expansion which was responsible for its failures. misfortunes.

The bank may also consider acquisitions, drawing on the new capital raised.

“We can also explore opportunities in microfinance, as this is an area where we are not yet present and it will take time to build it internally, so it may make sense to acquire instead,” said said Kumar, who took the reins in March 2020.

The capital raised will improve the bank’s Common Equity Tier 1 capital ratio, a key indicator of financial strength, to 15.7% from 11.9% currently, and the bank would not need to raise more capital for at least three to four years, he said. .

A LONG WAY AHEAD

Established in 2004, Yes Bank was the country’s fifth-largest lender until early 2020, after which it went through one crisis after another, including the arrest of its founder amid allegations of breaches of law. governance.

Its gross bad debts as a percentage of total loans had risen to 18.87% in December 2019 from 2.1% a year earlier. At the end of June 2022, the ratio was 13.9%.

Other public banks and private lenders had to step in in 2020 to save the bank.

Yes Bank’s stock is up more than 22% so far this year, after falling 23% last year and 62% in 2020.

Despite the moderate improvement in its finances in recent quarters, some analysts have said it will take several years before the bank is able to post significant growth and stabilization in its key financial ratios.

In the 2022 financial year, the bank reported a profit of 10.66 billion Indian rupees ($134 million) against a loss of 34.62 billion rupees the previous year. Kumar is confident that stabilizing its capital position will lead to an improvement in the bank’s rating, which in turn will bring more business and promote profitability.

However, analysts and investors remain skeptical.

“Even if Yes Bank’s turnaround works, it will take at least six to seven years,” said a fund manager, whose portfolio currently does not contain the bank’s shares and who declined to be identified because he does not was not authorized to speak to the media.

“I don’t think the latest developments will excite investors.”

($1 = 79.5550 Indian rupees)

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Reporting by Nupur Anand; Additional reporting by Abhirup Roy; Editing by Sumeet Chatterjee and Kim Coghill

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