On June 8 YES Bank’s board recommended to its shareholders that a new board of directors be put in place as the lender is set to exit the reconstruction scheme enforced on March 2020. YES Bank stock didn’t react to this move, despite its importance, partly because of weak market conditions and the question of ‘what next’ continuing to grip the bank.

To be fair, the decision to seek an exit from the reconstruction scheme is an indicator that the troubled past may be behind it. Numbers also corroborate. The run on deposits was arrested after the RBI-appointed board took charge in March 2020. Deposits have risen from ₹1.05 lakh crore in FY20 to nearly ₹2 lakh crore in FY22. Loan book, which plunged to ₹77,301 crore in FY20 after enormous write offs, rose to ₹1.35 lakh crore in FY22.

In short, the bank has regained the customer confidence. But that's not enough to win the shareholders' money. Right now, those holding 100 shares of YES Bank are locked into their position and their shares are frozen. With limited pools of shares available for trading, it explains why investors haven't seen massive swings in the counter reacting to good or bad news unlike other stocks. In March 2023, this embargo on YES Bank shares will be lifted and will open the floodgate if a strong investor isn't brought into the bank soon.

While a lot of ground has been cleared, operationally, at 13 per cent gross non-performing assets in FY22 and net interest margin (NIM) at 2.3 per cent doesn't make a comforting business case yet, especially from an investor perspective.

In better health

What is positive for now is that at 17.4 per cent CRAR (Capital to Risk Weighted Assets Ratio) the bank isn’t capital starved any longer. But it will have to open its wallet and aggressively press the pedal on growth (and profitability) in June and September quarters of FY23 to draw worthy investors into its fold. What's more, with the days of cheap money over for the banking system, and YES Bank’s eyes set on retail assets, share of which has increased from 40 per cent to 60 per cent in two years, YES Bank will be walking a thin line between growth, asset quality and profitability, given that retail borrowers tend to be very sensitive to rate hikes.

Much depends on how soon the bank manages to set up its asset reconstruction company (ARC). News reports suggest global major JC Flowers has been roped in for this purpose. The ARC can help in augmenting YES Bank’s asset quality and NIM. Yet despite all these efforts, the bank may still be lagging the FY19 balance sheet size of over ₹4 lakh crore by some margin. To catch up, the bank needs to grow its balance sheet by 25 per cent year-on-year in FY23. How fast it can get there is the litmus test.

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