State Bank of India-led rescue plan for Yes Bank brings relief to NRI depositors
Finance Minister Sitharaman assures depositors’ money will be safe under the new plan
Dubai: Under a Government of India approved bailout plan for the crisis-ridden Yes Bank, State Bank of India (SBI), India’s largest lender will pick up 49 per cent stake, cooling nerves of the panic stricken investors.
The SBI-led rescue plan comes as a big relief to the hunders of thounsands of depositors including non-resisent Indians (NRIs) who have their hard earned money deposited with the ciris-striken bank.
Indian Finance Minister Nirmala Sitharaman said late on Friday the restructuring plan would be implemented within 30 days, adding the depth of the problems at the bank were still being assessed.
A day after imposing moratorium on Yes Bank and restricting withdrawals, the RBI on Friday evening issued a draft reconstruction scheme for the private sector lender and said SBI has “expressed its willingness” to make an investment.
Restructuring plan
Earlier on Friday, SBI Chairman Rajnish Kumar met the finance minister. A former SBI chief financial officer (CFO) has already been appointed administrator of the Yes Bank, whose board has been superseded.
“The investor bank shall agree to invest in the equity of the reconstructed bank to the extent that post infusion it holds 49 per cent shareholding in the reconstructed bank at a price not less than Rs10 (Face value of Rs2) and premium of Rs8,” as per the RBI proposal.
As per the rescue plan the authorised capital Yes Bank would stand altered to Rs50 billion e and the number of equity shares at 24 billion having face value of Rs 2 each.
Based on details in the RBI’s statement, analysts calculated that SBI would invest some 25 billion rupees ($339 million).
RBI and SBI, the country’s largest lender, did not provide any clarity on the cash infusion or any detail on who would put in the additional funds required by Yes Bank, which has been trying to raise 100 billion rupees for months.
Analysts said that the bank will have to raise much more capital and bring in more investors.
Depositors assured
On Friday, Finance Minister Sitharaman she is in constant touch with the RBI and assured depositor money will be safe “I want to assure every depositor that their money shall be safe. Their monies are safe,” she said. “I am constantly in contact with the RBI and the steps that are taken are taken in the interest of depositors, banks and economy. We are fully seized of the development.”
Earlier in the day, RBI Governor Shaktikanta Das said Yes Bank resolution efforts are aimed at maintaining “stability and resilience” in the Indian financial sector and the difficulties will be overcome “very swiftly”.
Under the new plan SBI will not be allowed to reduce its stake to below 26 per cent for at least three years. All instruments issued by Yes Bank, which qualify as Additional Tier 1 capital will be written down permanently, according to the RBI’s plan.
Capital shortage
Yes Bank has been struggling to raise capital. It sought to raise $2 billion initially during this fiscal year, which was then pruned to $1.2 billion as it could not rope in any investor.
Also, the bank had deferred announcement of its financial results for the third quarter ended December. The bank had told stock exchanges that it will publish the same on or before March 14, 2020.
Stock of Yes Bank plunged by over 80 per cent during intra-day trade on BSE and closed 56.04 per cent down at Rs 16.20 apiece.
India’s central bank took control of the country’s fifth-largest private sector lender Yes Bank on Thursday and imposed limits on withdrawals, spreading confusion and fear among account holders. Shares of Yes Bank, which traded at 404 rupees at its peak in August 2019, fell to a record low of 5.65 rupees on Friday, with the stock plunging nearly 85 per cent. The fall wiped out 79.43 billion rupees ($1.08 billion) from Yes Bank’s market value.
In an unusual move, the Reserve Bank of India (the central bank of India) on Friday took control of the bank and declared a moratorium on fund withdrawals.
The bank which faced a series of governance issues in the past which led to a spike in non-performing loans (NPLs) and mounting losses warranted the RBI intervention. Erosion of capital and the management’s failure to raise fresh capital led to a sharp decline in its share prices over the past one year. Major troubles with bank’s governance and asset quality began to emerge in the second half of 2018.
Key milestones
- RBI refuses to give Chief Executive Officer Rana Kapoor an extension to his term in September 2018, Kapoor to steps down in January 2019
- Yes Bank hires the head of Deutsche Bank India, Ravneet Gill as its new CEO
- In May 2019 RBI increases scrutiny on the bank and appoints ex-central bank Deputy Governor R. Gandhi as additional director to Yes Bank's board.
- Bank reports further deterioration of asset quality in July 2019
- In October the bank announces that it is in talks with private equity firms and strategic investors to raise additional capital.
- In November 2019, the bank reported larger than expected losses with NPLs surging to 7.5 per cent of the total loan book/
- In January Yes Bank announces plans to raise $2 billion through issue of new equity to Canadian investor Erwin Singh Braich and Hong Kong-based SPGP Holdings, but the deal failed to take off.
- In February the bank said it received non-binding expressions of interest from JC Flowers, Tilden Park Capital Management, OHA (UK) and Silver Point Capital.
- On Mach 5, 2020 India places Yes Bank under moratorium, with RBI taking over the management from its board for 30 days.
- On March 6, 2020 a Government of India approved a bailout plan announced for the rescue of crisis-hit Yes Bank with State Bank of India to acquire 49 per cent stake in Yes Bank.