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With stake sales, Yes Bank is now poised for a makeover

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Yes Bank’s shareholding structure may witness a major churn by the year-end as founder Rana Kapoor has initiated talks to sell a part of his holding to One97 Communications Ltd, the parent of Paytm and Paytm Payments Bank.

Independently, a Reuters story on Tuesday cited Yes Bank CEO Ravneet Gill as saying that the bank is close to selling a minority stake to a global tech company as part of its capital-raising exercise. Although the bank subsequently denied these reports, Mint has independently verified that such talks might have indeed progressed somewhat.

The tech firm’s association is expected to help further the bank’s digital ambitions.

The bank has already been talking to large private equity firms for capital infusion. On 30 August, Yes Bank’s board proposed to increase the bank’s authorized share capital from Rs 800 crore to Rs 1,100 crore to enable an expansion in the paid-up capital.

If Rana Kapoor does manage to sell his stake to One97 Communications, or any other shareholder, it will not make any difference to the bank’s capital structure. Fresh equity issuance, on the other hand, will lead to dilution in promoter shareholding.

According to senior executives at Yes Bank, the promoters are willing to reduce their shareholding following this stake sale and also amend the articles of association, letting new shareholders get a board seat.

“We are open to reducing stake if the bank decides to sell a minority stake to a global tech firm,” Shagun Gogia told Mint. Gogia is co-promoter Madhu Kapur’s daughter and an additional director on the Yes Bank board. Madhu Kapur and her offices hold 9.17% stake in the bank, as of 30 June.

Rana Kapoor and his family offices hold 10.6% stake in the bank. A person close to Yes Bank’s co-promoter Rana Kapoor’s family said the stake sale to One97 would be completed through the stake held by Kapoor and his promoter group entity Morgan Credits Pvt. Ltd (MCPL); the combined holding of these two entities in Yes Bank is around 7.34%.

“There have been discussions between Kapoor, Yes Bank and several fintech firms including One97 Communications Ltd since August,” said the person cited earlier.

A statement issued by the bank to stock exchanges said: “The Bank in its usual and ordinary course of business continues to explore various means of raising capital/funds through issuance of securities to diverse set of investors, in order to meet its business/regulatory requirements, subject to compliance with prescribed procedures and receipt of statutes/regulatory approvals.”

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A One97 Communications spokesperson declined to comment on the story. Kapoor also declined to comment on this story. An email sent to Yes Bank also did not elicit a response.

If true, the deal will require RBI’s approval, given that One97 holds the licence for a payments bank. Questions are bound to be raised over whether the licence holder of a payments bank should be allowed to acquire a stake in a universal bank as it might be seen as a workaround. In addition, the widening of One97 Communication’s losses, as reported in Mint on Tuesday, is bound to weigh on the approval process.

Kapoor and MCPL also need to obtain consent from Reliance Nippon Life Asset Management Ltd (RNAM) to sell their stake, given that around 7.34% is pledged with RNAM. When contacted, an RNAM spokesperson said, “Reliance Nippon Life Asset Management has not given any consent and is not in discussion with anyone about Yes Bank’s pledged shares.”

Yes Bank co-promoter Rana Kapoor and his family-owned firm MCPL had to pledge their entire 7.34% or 170.25 million shares with RNAM. This was done because RNAM wanted to convert a previously unsecured loan (given to MCPL through non-convertible debentures) into a secured loan as the bank’s stock has lost 80% over the past year.

Last year, MCPL raised Rs 1,160 crore by selling non-convertible debentures to RNAM. A prepayment of ₹200 crore was made by MCPL to Reliance MF in November. The loan pact mandates that the value of Yes Bank shares (held by Kapoor and MCPL) should always be greater than double the loan outstanding.

The value of these 170.25 million shares as on Tuesday is around Rs 1,182.13 crore.

Yes Bank is in desperate need of fresh capital to improve its common equity tier-1 (CET-1) ratio adequately above the statutory requirement of 7.375% to stay afloat. The bank’s CET-1 ratio is marginally above this at around 8.6% after it completed its Rs 1,930 crore stock sale to institutional investors last month.

On 16 August, Mint reported that the bank is looking to raise an additional $600 million after raising $270 million from large investors through a qualified institutional placement.

The Yes Bank stock has been falling steadily since RBI indicated in August 2018 that Kapoor’s term as the bank’s CEO would not be renewed after January 2019. Since 20 August last year, Yes Bank shares have lost over 80% to Rs 63.10 as of Monday on the BSE.

Both MCPL and Yes Capital (India) Pvt. Ltd (which holds 3.26% in the bank) are fully owned by Kapoor’s three daughters.

In September 2018, after Yes Bank co-promoter Madhu Kapur sold a part of her holding, Rana Kapoor had tweeted how he regarded his shares as “diamonds”.

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Reliance profit rises on BP deal gain; revenue slides 44% on oil hit

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Reliance Industries Ltd’s <RELI.NS> June-quarter profit jumped 31%, as the Indian conglomerate booked a substantial one-time gain from global oil major BP’s <BP.L> investment in its fuel retail business.

Reliance, led by Asia’s richest man Mukesh Ambani, said on Thursday its consolidated profit rose to 132.33 billion rupees ($1.77 billion) in the three months to June 30, from 101.04 billion rupees a year earlier.

Analysts on average had expected 74.57 billion rupees, according to Refinitiv data. It was not immediately clear if the figures were comparable.

Reliance booked a one-time gain of 49.66 billion rupees ($663 million) during the quarter, reflecting BP’s deal to forge a fuel retailing joint venture with the Mumbai-headquartered firm last year.

However, revenue from operations at India’s largest company by market value slumped nearly 44% to 912.38 billion rupees, hurt by losses in the company’s oil refining business as coronavirus lockdowns slammed global energy demand.

Revenue from the refining unit fell 54%, said Reliance, which operates the world’s biggest oil refining complex.

Still, its Jio telecom unit – India’s biggest by subscribers – continued to remain a bright spot as revenue from the business jumped 33.7% during the quarter.

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Economy showing signs of getting back to normalcy, but medium term outlook still uncertain: RBI Guv

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India’s economy is showing signs of getting back to normalcy, Reserve Bank of India (RBI) Governor Shaktikanta Das said on Saturday.

Delivering a keynote address at the 7th SBI Banking and Economics Conclave, Das said, “Despite the substantial impact of pandemic in our daily lives, the financial system of the country, including all the payment systems and financial markets, are functioning without any hindrance”.

“The Indian economy has started showing signs of getting back to normalcy in response to the staggered easing of restrictions,” he said.

He added that COVID-19 pandemic perhaps represents so far the biggest test of robustness and resilience of our economic and financial system.

The RBI chief, however, noted that medium term outlook still remains uncertain. He cautioned that it is still uncertain when supply chains will be restored fully, how long will it take for demand conditions to normalise and what kind of durable effects the pandemic will leave behind on India’s potential growth.

“COVID-19 is the worst health and economic crisis in the last 100 years with unprecedented negative consequences for output, jobs and well being. It dented the existing world order, global value chains, labour and capital movements across the globe,” Das noted.

Elaborating on moves taken by the RBI till the pandemic struck, Das said, “From February 2019 onward, on a cumulative basis, we had cut the repo rate by 135 basis points till the onset of COVID-19. That was done mainly to tackle the slowdown in growth which was visible at that time”.

The lagged impact of these measures was about to propel a cyclical turnaround in economic activity, the RBI chief said, when COVID-19 brought with it calamities, miseries, endangering of lives and livelihood of people.

He further elaborated that a multi-pronged approach adopted by the Reserve Bank has provided a cushion from the immediate impact of the pandemic on banks.

“Policy action for the medium-term would require a careful assessment of how the crisis unfolds. Building buffers and raising capital will be crucial not only to ensure credit flow but also to build resilience in the financial system.”

According to Shaktikanta Das, the RBI has asked financial institutions to carry out a COVID stress test to see weaknesses in their balance sheet.

“We have recently advised all banks, non-deposit taking NBFCs and all deposit-taking NBFCs to assess the impact of COVID-19 on their balance sheet, asset quality, liquidity, profitability and capital adequacy for the financial year 2020-21.

“Based on the outcome of such stress testing, banks and non-banking financial companies have been advised to work out possible mitigating measures, including capital planning, capital raising, and contingency liquidity planning, among others. The idea is to ensure continued credit supply to different sectors of the economy and maintain financial stability,” Das said.

Besides, he cited that RBI has strengthened its offsite surveillance mechanism to proactively find weak institutes and to immediately take corrective steps.

“As the lock-down has obstructed our on-site supervisory examination to an extent, we are further enhancing our off-site surveillance mechanism. The objective of the off-site surveillance system would be to ‘smell the distress’, if any, and be able to initiate pre-emptive actions.”

“This requires use of market intelligence inputs and on-going engage ments with financial institutions on potential vulnerabilities. The off-site assessment framework, which takes into account macro and micro variables, i s more analytical and forward looking and aimed at identifying vulnerable se ctors, borrowers as well as supervised entities,” he said.

Furthermore, he said the supervisory approach of the Reserve Bank is to further strengthen its focus on developing financial institutions’ ability to identify, measure, and mitigate the risks.

“The new supervisory approach will be two-pronged – first, strengthening the internal defences of the supervised entities; and second, greater focus on identifying the early warning signals and initiate corrective action,” Das said.

He cited that to strengthen the internal defences, higher emphasis is now be ing given on causes of weaknesses than on symptoms.

“The symptoms of weak banks are usually poor asset quality, lack of profitability, loss of capital, excessive leverage, excessive risk exposure, poor conduct, and liquidity concerns. These different symptoms often emerge together,” he said.

“The causes of weak financial institutions can usually be traced to one or more of the following conditions: inappropriate business model, given the business environment; poor or inappropriate governance and assurance functions; poor decision making by senior management; and misalignment of intern al incentive structures with external stakeholder interests.”

Accordingly, he said RBI is placing special emphasis on the assessment of business model, governance and assurance functions, as these have been the are as of heightened supervisory concern.

“Supervised entities generally tend to focus more on business aspect seven to the detriment of governance aspects and assurance functions. There was also an apparent disconnect between their articulated business strategy and actual business operations. The thrust of the approach, therefore is, to improve the risk, compliance, and governance culture amongst the financial institutions,” he said.

In addition, he said that post the containment of Coronavirus, “a very careful trajectory has to be followed in orderly unwinding of counter-cyclical regulatory measures and the financial sector should return to normal function ing without relying on the regulatory relaxations as the new norm”.

“The Reserve Bank is making continuous assessment of the changing trajectory of financial stability risks and upgrading its own supervisory framework to ensure that financial stability is preserved,” he said.

“Banks and financial intermediaries have to be ever vigilant and substantially upgrade their capabilities with respect to governance, assurance functions and risk culture.”

Meanwhile, in his keynote address, the RBI governor said that the MPC has decided to cumulatively slash the policy repo rate further by 115 basis points.

With this, from February 2019, the total rate cut that the RBI has undertaken would be 250 basis points.

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Coca-Cola India, CSC sign MoU to boost its rural outreach

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One of the popular beverage maker Coca-Cola on Wednesday announced it has joined hands with Common Services Centers (CSCs) programme under Ministry of Electronics and Information Technology, to list its products on the latter’s Grameen e-Store platform.

“CSC and Coca-Cola’s partnership serves the dual purpose of providing last mile connectivity of essential and affordable hydration to citizens’ doorsteps, as well as promoting rural entrepreneurship and building livelihoods by mapping supply points to Village Level Entrepreneurs (VLEs),” a statement issued by the company said.

In the pilot phase, Coca-Cola’s portfolio of products will be listed on Grameen eStore, a hyper-local rural e-commerce platform, across the states of Andhra Pradesh, Telangana, Tamil Nadu, Uttar Pradesh and Haryana, it added.

CSC SPV CEO Dinesh Tyagi said, “Through this initiative, VLEs are playing a critical role in connecting producers and companies with the rural consumers right at their doorsteps. The partnership with Coca Cola will allow the stores to diversify their offerings while providing customers access to new products. It will be a win-win proposition.”

Commenting on the partnership, Coca-Cola India and Southwest Asia President T Krishnakumar said, “This initiative will help us with last mile connectivity to ensure people are hydrated and have their relevant choice of beverages. It underscores our long-term commitment towards creating a sustainable business in India through responsible actions and shared growth.”

He further said the company has adopted a hyperlocal strategy focused on strengthening the regional connect, both in terms of choice and reach.

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