Cash-strapped YES Bank will need additional equity capital upto Rs 13,000 crore in next one-two years for meeting its regulatory norms for maintaining capital level, according to rating agency ICRA. The agency said that the quantum and timing of capital raise is important for maintaining the capital ratios above the regulatory levels in future.
"As the regulatory norms require banks to maintain a capital conservation buffers (CCBs) of 2.5 per cent as on March 31, 2020, ICRA expects additional capital requirements of Rs 9,000-13,000 crore over the next 1-2 years," the agency said in its latest report.
The troubled private lender has already received an equity infusion of Rs 1,000 crore under RBI's reconstruction scheme and is likely to get a second round of capital investment very soon.
Adding to it, the lender is planning to raise up to Rs 20,000 crore through certificate of deposits (CDs), for which it has received 'CRISIL A2' rating from rating agency CRISIL. This would be a major fundraising initiative by the lender after being bailed out, in terms of both equity and liquidity, from the new set of investors and the regulator under the reconstruction scheme.
ICRA said that it will monitor the second phase of capital raising by the bank, adding that it may revise the outlook to positive or upgrade the ratings if the bank raise sufficient capital on a sustained basis. YES Bank's inability to raise capital may also lead a credit negative, it added.
"Over the near to medium term, the bank's ability to improve its deposit franchise and reduce its reliance on wholesale funding will be critical to maintain its scale of operations," ICRA said.
The agency also warned that the reduced scale of operations may impact its profitability unless it is able to prune its operating costs as well.
Meanwhile, ICRA has upgraded YES Bank's Basel III tier II bonds from "D" to "BB" and placed them on "Rating Watch with Developing Implications", citing removal of the moratorium and capital infusion from State Bank of India-led lenders. It also factored in the new shareholding and reconstitution of the bank's board.
"ICRA has upgraded the ratings without the passage of the 90-day curing period as an exception in this case, in light of the reconstruction of the bank," it said.
Under the government's approved reconstruction scheme, YES Bank has received equity of Rs 10,000 crore from State Bank of India (SBI), which now holds 48.2 per cent stake, and other domestic financial institutions. As per the terms of the reconstruction, SBI will initially hold not more than 49 per cent stake (subject to a minimum of 26 per cent to be held for a period of at least three years).
Along with the equity infusion of Rs 10,000 crore, YES Bank's Basel III Additional Tier 1 (AT-I) Bonds of Rs 8,415 crore have been written down, which has helped the bank in improving its Tier 1 capital ratios above the regulatory requirements.