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Yes Bank CEO Ravneet Gill speaks on the lender’s capital-raising plans, stressed loans, exposure to realty and more — Read the full interview here

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Yes Bank has received bids worth $3 billion from eight investors, CEO Ravneet Gill said. In an exclusive interview with CNBC-TV18, Gill said, apart from a $1.2 billion binding bid, various investors and family offices are interested to invest in the bank. Gill did not reveal details of the $1.2 billion binding bid, but said it was backed by a ‘large US financial institution’.

Yes Bank CEO Ravneet Gill speaks on the lender’s capital-raising plans, stressed loans, exposure to realty and more — Read the full interview here
Yes Bank has received bids worth $3 billion from eight investors, CEO Ravneet Gill said. In an exclusive interview with CNBC-TV18, Gill said, apart from a $1.2 billion binding bid, various investors and family offices are interested to invest in the bank.
“We put these bids into three buckets. There was a $1.2 billion binding bid, then we have eight investors, six of which are private equity and two are domestic mutual funds with bids of about $1.5 billion and then we have a mix of two of India’s most highly respected individual financial investors and two family offices who put another $350 million. The sum total of all of this is a little over $3 billion,” he said.
Gill did not reveal details of the $1.2 billion binding bid that the bank received, but said it was backed by a ‘large US financial institution’.
The bank is expected to announce details of the binding bid in a few days.
In September, Yes Bank announced its capital raising plans and said it had received ‘strong interest’ from multiple foreign as well as domestic private equity and strategic investors.
Edited excerpts from the interview:
We will ask you a lot about capital raising but the quality of the book, you didn’t prepare us for this and at the moment you have guided for Rs 5,000 crore more in terms of BB and below and even the fresh slippages of Rs 6,000 crore; about Rs 2,000 crore have come from the non-BB book. So we are suddenly staring at probably GNPA plus non-GNPA stressed loan of about 17 percent. How come this happened?
Let’s not jump to conclusion based on what we are doing scratching the surface. So let’s talk about the BB and below book. If I had to ask you the question – do you know what my exposure to the large diversified conglomerate is? Probably your answer is yes. You know what a single largest exposure is. So when we talk about BB and below book; Rs 2,000 crore of the increase comes from that group. This was investments which were earlier rated above BB and which then slipped during the course of the quarter and have come in from there. Therefore, when we talk about Rs 5,000 crore actually Rs 2,000 crore comes from an exposure which is very well understood by the market, has been fully disclosed to the market. Put that aside and then we talk about the other slippages. If you look at slippages like Cox & Kings or CG Power or CCD, do you really think that it is realistic to expect to budget any of these things that happened. These were not ordinary corporate events where a company’s performance went down or the company’s credit profile changed.
They are not slowdown victims?
They are not slowdown victims; I would say they were victims of very unfortunate circumstances. So you either had events which were management misdemeanor or just unfortunate incidents which were very difficult to anticipate and to that extent very difficult to budget. So, if you see it in that context, I do not think there is a single name that slipped where we didn’t read the credit right and it’s important for us to be able to understand that as well.
What we are asking is that we had interviews in October, right?
Yes.
And by that time the quarter had passed. So you should have prepared us for this in that case. What you are saying right now was true in the first week of October as well?
Which is absolutely correct. The fact of the matter is that given that we had a board meeting coming up, we need to be also mindful of what disclosures we can make, what disclosures we cannot make. The point I am making here which is limited to the point that is there, a single name out of these which was a credit issue, a typical credit issue which we did not see coming. So what happened, like I am saying in CG Power or what may have happened in the case of Cox & Kings; these are not regular corporate events. It is very difficult to budget, very difficult to anticipate and so to that extent was there an error of judgment in terms of not reading a particular name going in a certain direction. I think the answer to that is no. Having said that we would still see it as an error of judgement and when we had an earnings call, we had very clearly said that we will revise our credit cost guidance upwards based on what happened. I think also baked into that credit cost guidance that we had provided was the fact that there were 2 resolutions which were expected and which were in the public domain in the last quarter, which for whatever reason didn’t come to pass and that then in some case also impacted in terms of where we are with regard to our credit cost guidance.
One question I have from market’s point of view considering the big rally that we had on Thursday. You chose to announce that you had won binding bid. If it’s a binding bid then why didn’t you announce the name and second, next day if you say that you have non-binding bid as well, why didn’t you wait for the board meet to announce both together?
A very good question. I must tell you that on Thursday we received the binding bid and we took that to the law firm who are our legal counsels, we took it to them to ask whether this really, from a legal standpoint, constitute a binding bid or not. They went through the document and they said not only is it a binding bid but we also believe that this constitutes unpublished price sensitive information and to that extent you should declare it. However, we did not declare it at that point in time, but we went and spoke to the regulator and said that this is the advice that we have got from our legal counsels. When the regulator said that yes, this does constitute price sensitive information and you must disclose it, only at that point in time we disclosed it to the exchanges. There was no intention on our part to unilaterally make this announcement on Thursday, but when we got the legal opinion and we got the regulatory guidance that this is price sensitive information, we had to provide that disclosure. So it was an obligation on us to do that and not that we did it a day before the results.
Then we provided the guidance also with regard to having other bids which were non-binding in nature; that was always a part that we had said that along with our earnings call we will provide some colour to the market in terms of how our capital raising plans are proceeding and even though these are non-binding bids, what I can tell you is that these are very strong bids. These are not pending commercial due diligence etc., these would be potentially pending legal due diligence; obviously the regulatory side of it. So it wasn’t as if we tried to pre-empt the earnings call with that bid. It was based on feedback that we got from the law firm, based on feedback that we got from the regulator.
What is the total quantum of capital that you are raising? You spoke of $1.2 billion by one single investor and $1.5 billion by a few investors. So you are looking to raise over $2.5 billion?
What we were providing was that there was a $1.2 billion binding bid; I would put this into 3 buckets effectively. One is the bid that we talked about, the second, we have 8 investors 6 of which are private equity, 2 are domestic mutual funds where we have bids of about $1.5 billion and then we have a mix of 2 of India’s most highly respected individual financial investors and 2 family offices who put together another $350 million. The sum total of all of this is a little over $3 billion. So we were trying to provide the market with colour that in terms of what are the options that are available to us but that in no way has a bearing in terms of what is the amount we eventually go to raise. We will be calling for the capital raising committee of the board very shortly and then they have to make a final determination in terms of what is the combination that we need to go forward with.
One point I forgot to answer. You asked why we did not disclose the name from whom we received the bid. We have signed a non-disclosure with them that till the time that we finally make a decision on which investor we are going with, please do not disclosure the name because in some way it does compromise them. So it’s only from that standpoint that we did not disclose the name of the investor.
When will you disclose?
As soon as we have made the decision.
What is the deadline you are giving yourself?
We have the board meeting on Friday. So we will now convene a meeting of the CRC. The CRC will look at the various options and then based on what serves the long-term strategic interest of the bank in the best possible fashion, we will take that call and immediately come and announce to the market.
The given number is $1.2 billion. What are you looking at in terms of money? How much capital are you planning to raise?
I think that’s another question that we want to debate. I think one of the views is that given the demand that we have, could be potentially end up raising more capital than $1.2 billion which we had initially got approval for. So that is the other determination that we need to make.
$1.2 billion from a single investor actually would require the RBI permission because the amount of stake would be large and no single entity can hold that much stake in bank. So how are you dealing with that?
I wouldn’t want to pre-empt how the regulator looks at it. Having said that if you have seen in other cases as well, in exceptional cases the RBI has made exceptions. We have a case here in this country itself in recent times. So that is one of the other thing that we want to consider that if that is something which the regulator has to consider then can we then also simultaneously provide alternative solutions where by the mix that we provide becomes easier to deal with, but it’s very difficult to say what call the regulator will take in this respect.
It is well-known the kind of external candidates whom the RBI gives the green signal, they should be widely held entities. Can you say that of this global investor you are talking about?
As I said that we have signed a non-disclosure, it’s a difficult question to answer but if you look at the fact that we have invested in 3 different buckets which is what I mentioned to you. We could also solve this issue through a mix and match and a combination of those 3 buckets. So we would like to still keep it a nice tight consortium of investors, but we have the flexibility to be able to move those pieces around from a regulatory standpoint.
This provision coverage ratio is 43 percent. So $1.2 billion won’t be enough?
We have always said that what we will do is that every time there are recoveries we will use that to boost our provision coverage ratio (PCR). So first and foremost we haven’t changed our PCR; for the last 3 quarters if you see, our PCR has remained constant and we have always provided the guidance that as recoveries keep coming in we will use that to bolster PCR. So first and foremost the pre-provisioning operating profit that we generate even at a time when we were capital constraint, goes towards provisioning. However, the capital that we are looking at and I have said this previously as well, is essentially growth capital because we think that the opportunities are very good and to that extent we would like to get on to a growth mode quickly.
I would step back and make a couple of other observations. First and foremost, what also needs to be understood by the market is that in the last 2 quarters what we have been able to also demonstrate is that we can consolidate and we can accrete capital organically. We ended quarter one with CET1 of 8 percent. We have ended quarter 2 with CET1 of 8.7 percent. Two, if you look at our NIMs, our NIMs actually have held up very good despite the fact that we have had reversals on account of provisions. Three, if you see our cost of funding, it hasn’t moved. So the concern always is that in a consolidation mode with headwinds that could have an impact – those haven’t moved. So when the market looks at the results, all I would submit is that please look beneath the surface and you will see a lot of resilience which the bank has been able to show over the last 2 quarters.
This total stressed loans at 16 percent of the book is much higher than what you guided for earlier, is there a chance of further chunky defaults coming through and especially in spaces like real estate etc. which could take this percentage higher?
If you look at the double BB and below book, what we are talking about really is roughly 8-9 percent of our book. First let us make a distinction in terms of probability of default vis-à-vis loss given default and I think it is a very important distinction that we need to make, that is number one. Number two, if I look at the large concentrated exposures of the bank, I think those are now - all the legacy exposures now -- stand ring-fenced. So to the extent that could there be a very large casualty going forward in terms of concentrated exposure, I would say no.
The loss given default for the industry is 57 percent; that is what State Bank of India said.
It also depends on the sector that you are exposed to and what kind of collateral you have for your facilities. If I look at my BB and below book I would say even if I had to be very conservative and take that book I don’t see that more than at 20-25 percent.
Even your BBB and below book has gone up by about 4 percent?
Less than 4 percent, but the point is if you see overall and you look at the credit macros right now, did anybody anticipate them to continue to remain as challenging as they currently are? I think also a lot of this has to do with sentiment. If we had a couple of resolutions and when I say it is not just a bank ultimately it is the broader industry, I think that would have changed the sentiment too. The single biggest point that we need to recognise is that when you talk about financial services, I think financial services confidence plays a very big role. What we need to do collectively as an ecosystem is to be able to become facilitators for that. At the end of the day it is very easy to say that the government needs to step in and do this, the government needs to step in and do that. A financial services sector if you look at it, I think in terms of interconnectedness and interdependence, is higher than any other sector. To that extent it is very important that our stakeholders become facilitators rather than always looking at what is wrong.
You can realise the exposure risk in the real estate sector particularly? I understand that 7 percent of your book comes from there, but what are the numbers, how much is the exposure, how much is rated above BB and how much could perhaps slip in the quarters to come?
So anything that was represented some kind of a risk is either BB and below book where there are two large developers, the rest of it has been provisioned already. So, I think that piece has been taken care of. One of the reasons why we also elevated our credit cost guidance is that real estate continues to be a slightly stressed sector and has continued to face headwinds. To that extent what we want to be is just be extra watchful on them. Do we see anything imminent over there?  Answer is no. But would like to keep a very close eye on that, for sure yes.
What did you say is your percentage exposure to real estate?
So 6 percent, some of these are also exposures, what has happened is given that over the last two quarters we have reduced balance sheet they tend to look a little bigger. But otherwise if I look at my key exposure whether it is to NBFCs, whether it is to real estate, whether it is to some of the larger exposures that we have are significantly down quarter-on-quarter.
But you will be perhaps crunching your balance sheet in the current year as well, second half as well?
No, not necessarily I think, the moment we are able to raise capital, I think we would want to get back into a growth mode. So when we talk about let us say the state of the book etc. the exposures that we have, we are not sole lenders to these companies, but we get singled out simply because the capital buffers for a lot of our competitors are higher than those that we have. To that extent we must work on the belief that we get re-capitalise quickly than a lot of the concerns goes away. At the end of the day if you look at it on a broader basis, tell me about one financial services market in the world where you would put your money other than let say the private sector banks as far as India is concerned. The caveat there is that the bank needs to be fully capitalised. That is the process that we are now very closed to and my sense is that will change the narrative fairly quickly.
Do you have any clue on who bought the Rana Kapoor’s stake, because if it is less than half a percent for various entities that won’t be disclosed, I am sure you will have the details?
It is very interesting, if you see when that stake got sold over September 30-October 1, despite being a fairly large chunk was completely taken by retail. Today if you see the retail shareholding of Yes Bank, it is bigger than some of the biggest companies out together.
It wasn’t warehousing?
There was no warehousing, that data would be available with the exchanges as well that it got completely absorbed by retail shareholders. So there was no one large shareholders who came in and picked up that stake. So your concern about warehousing is unfounded I can promise you, but one thing which I would strongly recommend is if you were to go and look at the data in terms of the retail shareholders of Yes Bank I think you can put it through all the large companies of the country, some of the largest companies of the country and it would be twice the number of them put together.
When I asked you about whether the person with whom you have binding agreement will pass the Reserve Bank widely held test, if that is the case then your 1.2 problem is solved?
Two things here, one is that let me tell you that bid is also backed by a letter from a very large long-standing financial institution in the US saying that they have the ability to be able put in $1.2 billion if they decide to make that investment.
It is not this global investor you are talking about who is going to actually buy the stake, someone is backing him?
No, at the end of the day you would want to know whether somebody is making a bid, do they have wherewithal to be able to do that, so just to support them that they have the ability to be able to make that investment, number one. Number two, like I said, it is very difficult for me to think about what call the regulator will take. We have forwarded this term sheet to them, we will now be going and having a conversation with them. All of it have moved very quickly, Thursday the bid came in and Friday was the board meeting. We will go and have a discussion with the regulator in this respect, but I won’t want to hazard a guess in terms of what the regulator would think of this particular bid.
You said there are two Indian mutual funds, are any of the bidders those who already bid in your previous round or even bought in your previous one?
Yes.
There are some people who are willing to put their bid again.
Absolutely right and I can also tell you that the private equity that have come in - each of them has done a very detailed due diligence. So, when we did the QIP in August at that time I was very clear that the next capital raise has to be private equity simply because the external validation that it provides in terms of the book.
You said that in last quarter you have 8 percent CET, now you have 8.7 percent CET, but last quarter you also had much less in terms of stressed loans as I said Rs 7,000 crore at least less in term of extra stress has been announced in this quarter.
When you say extra stress again I am saying that take Rs 2,000 crore away for the big conglomerate that we had. So the additional money is only 3 and it’s not 7; so that is number one. Number two I think like I am saying capital gets used up but despite that we have finished CET 1 at 8 and now our CET 1 is at 8.7. So what we are saying is that through balance sheet optimisation and rationalisation we have actually been able to accrete capital organically. So we have demonstrated that over two quarters and I think we can continue to do that if you want but we don’t want to do that. We would want to quickly raise capital and move on to a growth rather than consolidation.
When will we get to hear you said, November 10, 15?
Like I said on Friday was our board meeting, we will very quickly now call for a meeting of the CRC, when I say quickly, I mean matter of days and hopefully then be able to announce it.
Can you comfortably say that the worst is behind you?
Not only can I say that, despite everything that is happening around us, I have to also mention something else; when we talk about investor feedback and when we talk about how markets typically react every class of investor doesn’t think the same way. So you have the public market investors or FIIs and all of that who see what is happening and then react to that. There are other investors let us say private equity who slightly take a long term view. So what are the determinations that a private equity investor needs to make, I think those are two. One is the asset quality. Now banking is a legacy business you can’t walk away from it, I am not a manufacturing company that one product did not do well and walk away from it so I will have to work my way through as far as the portfolio is concerned. So one, do they believe that we can work our way through portfolio and obviously capital plays a very big role. But for a lot of these private equity investors the thing that they were looking for was that has the revenue generation engine of this bank got anyway impaired, they have come back saying that they feel that this is a bank that can very easily generate Rs 3,000 crore of pre-provisioning operating profit quarter-on-quarter. I think that is what they are betting on.
Right now despite the lack of capital, we obviously have come down and we have had write backs, the income reversals, their consistent view was that the revenue generation engine of this bank remains unimpaired. The fact that once it is re-capitalised, it can really come back and deliver. I will put that question to the three of you typically given the fact that three of you gave me the toughest time of all the anchors, is that if you look at the bank, if you look at the product capability of the bank, if you look at the country wide presence of the bank, if you look at the quality of the people of this thing, if you look at the technological competence would you ever question the ability of Yes Bank to come back on the back of capital. If that is a fundamental concern then I guess my case. But if you believe that then you must equally believe that once capital comes in we will be back punching above Rs 80.
Coming back to this whole issue about this stress book and with real estate exposure, I wanted to know what exactly is the exposure that Yes Bank has to DHFL?
It is fully disclosed, these are all bonds and they are rated and they are listed so you will have full disclosure.
What is the quantum?
We just don’t talk about individual exposures there but it is very well recognised, so when we talk about our BB and below book and I look at just four names, do remember those four names are 80 percent of that exposure in that BB and below. So it is not as if there are 100s of names out there which are dying for resolutions. It is not, it is just four large names which potentially have about 80 percent of that. Again like I am saying and it was interesting that discussion after discussion with analyst, with the media and with investors the fact that Rs 2,000 crore of BB and below book is a disclosed exposure but was rated higher, so was not part of that came as a surprise. So, we would want to be very transparent, we would like to be very proactive but like I said when there is a corporate accident like it happened in these particular cases it just becomes very difficult to pre-empt. Having said that I believe that we have sight of capital and with capital there I think we will come back very strong.
What kind of credit growth can you reasonably tell us for the second half?
Once the capital comes I think - there are two things - I think there are opportunities for us to grow inorganically which is bang on portfolios and second is the regular growth. I can grow faster but given where the credit environment right now I would want it to be much more calibrated so I would say that right upfront would be in the teens, but we could very comfortably and very thoughtful deliberate well considered fashion grow at let us say 20 and thereabouts.

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