With a sharp erosion in its deposit base, lender YES Bank has requested the Reserve Bank of India (RBI) to extend the short-term special liquidity window for a period of one year.
“The bank had also been granted a short term special liquidity facility for 90 days (ending on June 16, 2020) from the RBI. The bank has written to RBI for an extension of the same for a year,” noted the auditor’s note, which is part of the fourth quarter results of the private sector lender.
YES Bank on Wednesday posted a net profit of Rs 2,628.61 crore for the fourth quarter of 2019- with a onetime adjustment from AT1 bonds but its deposit base fell to deposit base halved to Rs 1,05,364 crore as on March 31, 2020 from Rs 2,27,610 crore a year ago.
“In addition the deposit outflow in early October on account of a combination of events such as invocation of Promoter's pledged shares and IT glitches for YES Bank (and others) problems arising from financial distress in Punjab and Maharashtra Cooperative Bank led to a continuing breach in Statutory Liquidity Ratio and Liquidity Coverage Ratio starting October 2019 and continues till date,” the bank noted, adding that it has raised certificate of deposits (CDs) of Rs 7,200 crore as at March 31, 2020.
But, despite concerns over the reduction in deposit and uncertainty from the national lockdown and economic slowdown due to coronavirus, the bank’s new management and Board is confident that it will be able to “tide over the current issues successfully”.
The noted also said that YES Bank's management and board of directors have made an assessment of its ability to continue as a going concern based on the projected financial statements for the next three years. It stated that they are satisfied that the proposed capital infusion and the bank's strong customer base as well as branch network will enable the bank to continue its business for the foreseeable future, so as to be able to realise its assets and discharge its liabilities in its normal course of business. The noted addedd, “This belief is reinforced by the pedigree of new investors of the bank (led by State Bank of India and other Financial Institutions).”
Capital raising
With the bank breaching the regulatory requirements for CET 1 ratio and Tier 1 capital ratio, it will have to take steps to augment its capital base this fiscal even as “there is uncertainty around RBI's potential action”, the auditor’s note said.
The auditor’s note also said “there is uncertainty around RBI's potential action” as the lender has breached the regulatory requirements of RBI regarding maintaining the minimum CET 1 and Tier 1 capital ratios which indicates the position of capital adequacy of a bank.
The CET 1 ratio and the Tier 1 capital ratio for the bank as at 31 March 2020 stood at 6.3 per cent.and 6.5 per cent as compared to the minimum requirements of 7.375 per cent and 8.875 per cent respectively
“The breach is primarily on account of the increase in the provision for advances during the year ended 31 March 2020,” it said, adding that the write back of the AT 1 bonds on 14 March 2020 also resulted in the breach of Tier 1 capital ratio as at 31 March 2020.
Measures
YES Bank said it is taking measures to improve deposit base and is also working on faster resolution of stressed assets.
The bank has set up a separate vertical for stressed asset resolution with a near 100 member team that will work to unlock value from the stressed assets pool. “Segregation of assets and management to facilitate strategic spin off of these assets to a separate legal entity or sale to ARC at a later stage,” it said in the investor presentation.
The bank’s gross non performing assets stood at 16.8 per cent of gross advances amounting to Rs 32,878 crore as on March 31, 2020.