Yes Bank shares gain over 11% in trade: What triggered the surge?

As per a report by Mint, Yes Bank, one of India's prominent private lenders, is on the lookout for a new owner, aiming to offload up to 51% of its stake, according to sources familiar with the matter. The bank has enlisted Citigroup's Indian division to spearhead the search for potential buyers.

Sources revealed to Mint that Yes Bank is eyeing a valuation in the range of $8-9 billion, representing a substantial increase from its current market capitalization of $7.2 billion. The bank has extended invitations to various Indian financial institutions, including its existing shareholders, to participate as potential promoters.

In addition to domestic entities, Yes Bank has reached out to banks and financial institutions in Japan, West Asia, and Europe to gauge interest in acquiring a majority stake. Discussions with prospective investors are reportedly in the early stages, with some Japanese banks already conducting due diligence.

However, any new promoter acquiring over 26% stake will necessitate special approval from the Reserve Bank of India (RBI) due to regulatory guidelines. These guidelines typically limit a promoter's holding in a private bank to 26%, although exceptions can be made under specific circumstances.

The stake sale initiative aims to provide an exit strategy for Yes Bank's major shareholders, including State Bank of India (SBI), Life Insurance Corp. Of India (LIC), HDFC Bank Ltd, and ICICI Bank Ltd. These institutions intervened to rescue Yes Bank in 2020 when the RBI took over the lender to prevent its collapse under previous management.

Since SBI holds the largest stake at 29%, it has assured the investment banker overseeing the deal that the incoming promoter will have the opportunity to acquire up to 51% ownership, ensuring clarity in the bank's management.

While Citigroup declined to comment on the matter, Yes Bank and SBI did not respond to emails seeking clarification.

Yes Bank has witnessed significant growth in its deposit base, which has surged from ₹1 trillion in March 2020 to at least ₹2.4 trillion currently, with a substantial portion comprising low-cost deposits. The bank's asset management stands at approximately ₹3.8 trillion, with a notable increase in retail, small, and medium enterprise loans, considered safer than large corporate advances.

The bank's improved financial performance under SBI's stewardship is evident from a 349% year-on-year surge in net profit to ₹231 crore in the quarter ending December 2023. This, coupled with a net interest margin of 2.4%, surpassing previous quarters, underscores Yes Bank's resurgence under new ownership.

The success of the stake sale hinges on the valuation, as investors perceive Yes Bank's performance to be stronger than reflected in its stock price. Moreover, the quality of the bank's loan portfolio will influence investor sentiment, particularly concerning corporate lending.

An ownership change could position Yes Bank as a more aggressive competitor in the private banking sector, potentially offering higher deposit rates and more favorable loan terms. This, in turn, may lead to heightened competition among peers and improved offerings for borrowers.

Overall, the impending ownership transition signifies a pivotal moment for Yes Bank, with potential implications for its future trajectory and the broader landscape of India's banking sector.