Those were power generation assets. Not exposure to HFCs.
NBFC problem has surfaced due to liquidity crisis. They borrow short term and lend long term by rolling over their short term loans over and over again. Unless their balance sheets are not cooked up, money lent to companies like DHFL, Reliance Capital, Reliance Home finance IL&FS etc. NBFCs, could be considered as secured (backed by real assets) but recovering for banks wont be easy task as it has to go through long procedure of claims, defaults, NCLT, NCLAT and higher courts.
In case of DHFL, if promoter integrity was not in question and be trusted then they have put on record to have sold 30k cr of loan and in talks with Oaktree Cap. for another 18k cr. So about 50% of DHFL total loan book of 92k cr should be recovered with these transactions. The point to note here is that almost entire amount said to be raised by DHFL is based on selling of retail loans (easy to sell) presumed to be of high quality. In general defaults by individuals on housing loans are rare due to concept of “sanctity of home”. The quality of retail loans can also be judged with, that even Primal is interested in buying retail assets of DHFL, but no one has shown so far any interest into corporate assets of DHFL.
DHFL has got more than 21k cr of loan given to developers where quality of assets won’t be all good as some corporate which take loans from HFCs instead of Banks do have some credit worthiness issues. So assuming some part of these developers loan as bad, bank should be able to recover more than 75% from DHFL. Similar recovery can be done from all other NBFCs where loans are backed by assets.
The process of recovery is a very lengthy process, which will lead to more and more of provisioning each new quarter, eating up all the profits and the liquidity that bank needs to operate. So with all these overhangs Yes bank would have to raise capital at low valuation leading to a large equity dilution, a double whammy for the existing investors.
Best way to understand balance sheet clean up is to study ICICI, Axis for last 3-4 years come up with expected time frame for Yes Bank and decide whether to stay invested that long or look for other opportunities.
Disclosure: Not Invested
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“Yes Bank has stopped selling bad assets to two ARCs after RBI’s inspection found that the bank was selling the assets at 100 per cent haircut,”
Read more at:
//economictimes.indiatimes.com/articleshow/69405179.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
This should provide some relief to yes bank…
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Can the amount drawn on the back of comfort letters or guarantees from promoters be significant? Can anyone comment on this?
IL&FS Case | NCLAT says amber cos turning green are allowed to begin servicing debts. Amber cos fail to turn green, will need to make payments to PF & Pension Funds; red cos whose health fails to improve will have to face IBC proceedings
-CNBC TV18…
Here is a short analysis of Yes Bank and it looks worrisome from investor point of view
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The key to all these reports is the assumption on NPAs, ie how much of BB/BBB book can turn into NPA.
Management which has repeatedly said 10Kcr(not NPA) is their stressed book. The process of identifying NPAs has to be bottoms up(per project /account) and not top down. This info lies only with the management. You can’t really say what if x% goes NPA.
Bottom line either trust management on this or put any number in x multiple it by leverage and believe how Bank could go bust.
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Thank you Raman for your feedback. Below are few of the points upon which the x% (50% in this case) was assumed in Yes Bank Analysis:
- The big jump in BB/BBB book from 2.5% from Dec-18 to 7.1% in Mar-19. Please note that management is recognizing stressed asset on the back of rating downgrade. Rating downgrade in most of the cases happen only after something has gone wrong with the asset. Its never an early warning signal. DHFL rating used to be AAA just 6-8 months back and now it is D.
- Management here has given no further details on what has caused the sudden increase from 2.5% to 7.1% in just 3 months. Neither have they given any information on what are these exposures. Hence we can either rely on their words that these exposures are something not to worry about or rely on the news. For example if you read this news
Business Standard
It talks about close to 13000 cr exposure to ADAG and 3300 cr to Essel group. These 2 itself totals up to 16300 cr and as per the blog 7.1% of BB/BBB Book is 17380 cr. So here we can assume that most of the BB/BBB Book is against ADAG and Essel group because Yes Bank are yet to classify them as NPA. - Out of the 13000 cr exposure to ADAG most of it is for Reliance Communication (as per the news). I could not find exactly how much is for Reliance Communication hence left with no choice but to assume. Lets say best case scenario is that only 50% of 13000 cr is exposed to Reliance Communication, i.e 6500 cr and they have already filed for insolvency.
- Overall what we are trying to assume here is that since usually when the rating downgrade happens they are rarely an early warning signs rather in most of the cases they come after the company has gone in trouble.
- Corporate loans are usually given based on the cash flow potential of the company and usually the real asset on collateral are a fraction of loan amount. Hence for example I am not sure out of the total loan to ADAG how much will come back to Yes Bank
- Going by the above mentioned points we can either make some assumption on our own or rely on management. It is upto us to decide what sounds more logical as an investor.
- Please note that here I am not assuming that the Bank will simply go bust. Here the whole analysis points out the serious problem that Yes Bank is having. And hence we can see the reason why RBI has intervened to such great length. They know that Yes Bank is too big to fail hence I am sure they will do everything that is possible to save the bank.
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Letter of comfort has no legal standing. Whereas guarantee has to be made good.
Just to add to what others are saying, I think Yes is the only bank which has taken full provision on IL&FS while many marquee banks are yet to do so.
Net-net, the real test of what Yes holds will be when they raise that 3000 Crores. Last QIP happened 2 years ago at share price of 300 (post split) and they raised about 5000 Crores. Those investors would surely be pissed if this QIP happens at half that price. And listening to the interview of DHFL chairman, it seems most of these companies have liquidity issue and not solvency issue which means unless all of these default together in the same quarter, Yes should be able to sail through. So wait for QIP event.
Do you really think after revised NPA curcular, they need capital. 
Actually, even before this circular, there were some hints that IL&FS may move from red to amber which means Yes might be able to reverse the provisions made for IL&FS exposure. But in the end, I am waiting for QIP price which will be the biggest vote of confidence for Yes. They want to raise 3000 Crores and Current MCap is more than 10 times of that so max dilution will be 10%. I am hoping they are able to do it for much less than that.
Going by the situation it is becoming more and more clear that rana talwar deliberately wanted to stay at the Helmand of affairs. May be his intent was to clean the books before he handover the mantle to someone else. As the time goes, it seems the things will only go worse before it gets better.
The situation is similar to PNB and there is every possibility that it will go down just like pnb before, if at all, it goes up again.
And if it does not recover rana talwar may end up thanking RBI, it saved him from embarrassment of being in control when things went down hill.
I think indusind bank management made a good point when it said that media houses reported exposures to entities based on charges filed. And the loan exposure reported in some cases was exposure outstanding 2-3 yrs back. They are significantly repaid in the subsequent period. So that can be the case with yes bank too. Only time will tell.
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I am seeing the recent board exits( 2 ) in Yes. If I am reading this right, There could be a possibility to give these seats to new folks(PE) who want to infuse capital into the bank.Considering the sequence of events that have happened till date,liquidity crisis in the market, PE’s could strike a bargain to infuse capital.
Disclaimer: Invested and accumulating.
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As per CNBC news there is tussle going on with board bcos Rana Kapoor wants board seat and also asked for compensation in crores. This is the reason for recent exits.
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Hello bimal, Thanks for the link. Interesting to see How this will shape up further.
Since RBI has a say they might not like to give him any seat in the bank 