Home Business Yes Bank FPO: Can the money plant grow again?

Yes Bank FPO: Can the money plant grow again?

The money plant was a ubiquitous prop in many of the events of Yes Bank, perhaps as a symbol of the lender’s fast growth. But unlike the creeper that gets a support system to hug and grow, Yes Bank’s core crumbled and the lender had to be rescued.

The new version of Yes Bank with talent and money imported from the country’s largest lender State Bank of India (SBI) does give some confidence to investors. This is visible from the fact that Yes Bank managed to get a reasonable response to its follow-on public offer (FPO). The ₹15000 crore hasn’t been a blockbuster success; but the bank is likely to end up with most of the money it aimed to raise.

Note that the anchor portion of the issue itself was marginally undersubscribed, with subscriptions worth Rs4100 crore, against a total book size of Rs4500 crore. Besides, the allotment was done at the lower end of the price band. Confidence from investors is not forthcoming for the bank. Just as well because Yes Bank is unlikely to generate returns for the investors anytime soon. “Yes Bank is not a growth story,” said an analyst requesting anonymity. The hope is that the FPO makes it a survival story at least.

The FPO is key for the survival of Yes Bank because its Tier-I capital is barely enough to keep it afloat despite the rescue mission. As of March end, the bank’s Tier-1 capital was ₹15,000 crore or 6.5% of its risk weighted assets. The regulatory minimum is 8% and the FPO would help Yes Bank reach this. Even so, a drain on the capital is imminent as about 17% of the lender’s loan book is toxic. Moreover, stress has been piling up owing to the pandemic as well as past mistakes. It is clear that the FPO money would largely go towards provisions. Even as the FPO is crucial for the lender, it may not be enough for the bank for growth. Including capital needs for growth, the bank needed to raise at least Rs23,000 crore, analysts at Macquarie wrote in a note to clients.

The good news about the FPO is that a new set of investors have come in, and SBI’s stake is set to reduce considerably from the current 48%. But this trend needs to grow; else a withering money plant could potentially end up choking SBI.


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