YES Bank 3-year lock-in period ends soon: Returns that SBI, others made on their investments

YES Bank Ltd will soon complete three years of its rescue plan that saw a SBI-led consortium of lenders acquiring stakes in the private lender at Rs 10 a piece. Reports have already emerged that SBI was looking to cut stake in the lender post the expiry of lock-in period.

SBI Ltd, which initially acquired 49 per cent stake in YES Bank, held 26.14 per cent stake in the private bank, as of December 31, 2022. SBI was required to maintain at least 26 per cent stake in YES Bank for three years.

YES Bank shares settled at Rs 17.49 on Thursday over the issue price of Rs 10 each, suggesting SBI and seven private lenders namely ICICI Bank, HDFC, Axis Bank, Kotak Mahindra Bank, Bandhan Bank, Federal Bank and IDFC First Bank made 74.90 per cent return on their investments in the three-year period.

This excludes part profits booked on YES Bank by Kotak Mahindra Bank Ltd, Federal Bank Ltd and IDFC First Bank Ltd within days into their investments in the once Rana Kapoor-led lender and also the YES Bank shares that SBI sold during the three-year period. The bank did not announce any dividend in the past three years.

YES Bank shares have been witnessing increased volatility off late, as the holding lock-in period of three-year for few private banks comes to an end in March 2023, said Amar Deo Singh, Head Advisory at Angel One. The scrip is down 20 per cent year-to-date.

“Given the bank’s approaching Q4 numbers, investors might decide on holding onto the stocks, as post the SBI management taking over the reins, the bank’s fortunes have improved marginally. Further, the Finance Ministry’s mechanism to handle bad loans, is also likely to help YES Bank in the medium term. Technically, the stock seems to be consolidating in a range between Rs 15 and Rs 25. Investors can look at booking profits at higher levels,” Singh said.

To recall, the rapidly deteriorating financial position of the YES Bank relating to liquidity, capital and other critical parameters, and the absence of any credible plan for infusion of capital had forced RBI to take immediate action. SBI was allotted 725 crore shares at a price of Rs 10 each worth Rs 7,250 crore. For the PSU, it was mandated not reduce its holding below 26 per cent, before the completion of of three years.

Seven other lenders were allotted a total 395 crore shares at Rs 10 each. A total of 75 per cent of such number of equity shares allotted to each such investor was subject to a lock-in for three years from March 13, 2020. The remaining 25 per cent of the shareholding allotted to each investor was freely transferable.

Mortgage lender HDFC and private lender ICICI Bank had bought YES Bank shares worth Rs 1,000 crore each. Axis Bank invested Rs 600 crore in YES bank while Kotak Mahindra Bank had bought shares to the tune of Rs 500 crore. Federal Bank and Bandhan Bank invested Rs 300 crore each while IDFC Bank invested Rs 2,500 crore in the bank.

At Friday’s intraday levels, the 26.14 per cent stake that SBI held in YES Bank was worth Rs 12,740 crore. HDFC’s 3.48 per cent stake was worth roughly Rs 1,700 crore. ICICI Bank’s 2.61 per cent stake was worth Rs 1,272 crore; Axis Bank’ 1.57 per cent stake was worth Rs 765 crore, IDFC First Bank’s 1 per cent stake was worth Rs 487 crore. Kotak Mahindra Bank’s 1.32 per cent stake, meanwhile, was worth Rs 643 crore.

Anand Rathi expects YES Bank’s return on asset (RoA) to stay below 1 per cent through FY24 and FY25. In its December quarter earnings review, the brokerage said while the operating performance of YES Bank has improved compared to previous quarters, with the cost-to-income ratio still above 70 per cent, it would take multiple quarters for the P&L to normalise, it said.

ICICIdirect in a January 22 note said it remained cognizant of the risks arising from incremental ageing-related provisions, modest RoE profile during transition, decision to write-down AT-1 bonds being challenged in Court and stock supply overhang post the expiry of lock-in shares in March.

As of December 31, YES Bank had non-performing asset ratio of 2.02 per cent (thanks to sale of stressed assets to ARC) and a provision coverage ratio (excluding technical write-offs) of 49.4 per cent.

Since 2020 NPA crisis, YES Bank focused on reducing asset quality challenges by accelerating provisions and cleaning up its balance sheet. Unlike the previous cycle, the bank focused on increasing the share of retail on both sides of the balance sheet, analysts noted.

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