Back from the brink, Yes Bank says SMBC stake buy creates room for rating upgrade

Mumbai: Japanese lender SMBC's decision to buy nearly 25 per cent stake in Yes Bank should be seen as a vote of confidence and also creates "possibilities" of a rating upgrade, a top official at the private sector lender has said.

The nearly Rs 16,000-crore bet from Sumitomo Mitsui Banking Corporation (SMBC) is a strategic one from an investor of global repute and it will help improve Yes Bank's ability to raise capital, drive business growth through network tie-ups and increase profitability, the official said.

"(With) the advantage ...in terms of having a strategic investor, ability to raise capital, somebody willing to put (money) ...the possibility of our rating upgrade is there," Yes Bank's managing director and chief executive Prashant Kumar told PTI in an interview here.

Kumar, a career SBI executive who was rushed to helm the recovery of the private bank in March 2020, said that Yes Bank's rating has improved to 'AA-' now from 'D' earlier.

Commenting on Yes Bank's journey over the last five years, Kumar said, "A bank which was about to close down has not only survived, but is also doing very well and able to get one of the very large foreign investments." An alleged promoter malfeasance, which resulted in the arrest of one of Kumar's predecessors Rana Kapoor, had led to huge troubles for Yes Bank, including questions over the true extent of non-performing loans sitting in the balance sheet, continued losses and an inability to raise capital.

In March 2020, weeks before the onset of the Covid crisis, the RBI and government staged a rescue act which saw banks led by SBI taking a 79 per cent stake in Yes Bank and helping it stay afloat. Kumar, who used to then serve as the chief financial officer of the country's largest lender, was put in charge of the effort.

Kumar said a rating upgrade will help the bank get deposits or liabilities from large corporates, institutional investors and also government entities, which are guided by certain rating profiles.

The bank continues to be in regular touch of rating agencies, he said, refraining from giving a timeline on when it sees a rating upgrade coming.

SBI continues to be a major shareholder in the bank with over 10 per cent ownership, which gives further confidence from a capital raising perspective, Kumar said, adding that the bank is adequately capitalised right now.

Answering a specific question on the lack of adequate appreciation in the share price, Kumar asked the investor community to be patient.

"Investor need to have some patience. They have to see from where this bank started, you can't compare with a bank who was not put to that kind of punishment," he added.

The stake purchase by SMBC -- which has picked up 24.2 per cent against two board seats -- will also help open doors for Yes Bank in getting fee-based business from companies that have borrowed from the Japanese lender, and also serve the smaller businesses forming the supply chain for the borrowing entity, Kumar said.

To a question on what changes from an operational perspective and the business changes in the offing now, Kumar did not offer a specific answer.

"Going forward, definitely with their (SMBC) involvement, the entire board would sit and we will see how we can increase our business prospects and profitability. But there are no specific asks," Kumar said.

Kumar, whose current term ends in April next year, declined to comment if he will be available for Yes Bank in future or if there have been some conversation with SMBC on this.

He said the bank is on track to achieve its stated target of exiting FY27 with a return of assets of 1 per cent, up from 0.8 per cent at present, and added that the same number was 0.3 per cent not so long back.

More than loan book growth -- which is picking up now -- the bank will concentrate on profitability, Kumar said, adding that it will focus on lending in segments which deliver wider net interest margins like used car finance and affordable loans.

The net interest margins are expected to reach a trough in the ongoing September quarter, but will rise from Q3 onwards, Kumar said, exuding confidence that it will exit FY26 at an NIM of 2.7 per cent.

When asked about concerns around small business loans, Kumar said the bank does not see any reverses on the book.