State-owned State Bank of India (SBI) will pick up a 49 per cent stake in troubled private lender YES Bank as part of a revival scheme framed by the Reserve Bank of India (RBI) on Friday. The draft scheme, titled “Yes Bank Ltd. Reconstruction Scheme, 2020”, issued by the RBI, mentioned SBI as the “investor bank” and said it would pay at least Rs 10 per share for buying equity in YES Bank.
The move will lead to a capital infusion of roughly Rs 2,650 crore by SBI, with equity worth Rs 2,450 crore and preferential shares of around Rs 200 crore, an RBI executive said, requesting anonymity.
According to the scheme, YES Bank’s authorised capital will stand at Rs 5,000 crore and the paid-up capital will be Rs 4,800 crore. The country’s largest lender will acquire shares of a face value of Rs 2 each at a premium of Rs 8 apiece, according to the scheme made public by the RBI.
The RBI has invited comments on the draft scheme from members, depositors, or creditors of YES Bank Ltd and will accept them till March 9.
SBI’s stake of 49 per cent in YES Bank will be locked in for three years and it will “not reduce its holding below 26% before completion of three years from the date of infusion of the capital”.
SBI had expressed its willingness to make investment in YES Bank after getting an “in principle” approval from its board on Thursday.
The RBI, which superseded the board of YES Bank and imposed a 30-day moratorium on it “in the absence of a credible revival plan” amid a “serious deterioration” in its financial health, will appoint a new board of directors. SBI will be allowed to bring in two directors on the board, according to the draft scheme.
For at least one year, none of the employees will be terminated and will continue to get the same remuneration with the “same terms and conditions of service, including terms of determination of service and retirement”.
However, the board will be free to discontinue the services of key managerial persons at any point of time.
“The RBI has assured it will make the scheme effective within the moratorium period (of 30 days) so that depositors are not troubled for too long”, Sitharaman said.
“The deposits and liabilities will continue to remain unaffected as before. I know there is a temporary cap but every deposit and liability will be honoured,” the finance minister added, holding a press conference shortly after the RBI’s draft scheme was made public.
She said all financial institutions, including banks and non-banking financial companies, are being closely monitored on a daily basis for the past six months.
“I remember I had repeatedly said that I will not allow any institutions to fall off the cliff,” Sitharaman said.
Earlier on Friday, RBI Governor Shaktikanta Das had said YES Bank’s resolution efforts are aimed at maintaining “stability and resilience” in the Indian financial sector and the difficulties will be overcome “very swiftly.”
Sitharaman explained that the government came into play in January 2020 after the private lender had failed multiple times in raising capital from investors after making “genuine attempts.”
“Once in November 2019 there was no longer a scope for getting any money and coincidently, the chairman of their audit committee resigned in January 2020. Things came to a passé and that’s when we started engaging,” Sitharaman said.
She said the RBI, which had been closely monitoring YES Bank since 2017, observed issues that were serious in nature. “There was definitely weak compliance and culture itself was of weak compliance. There was also wrong asset classification together with risky credit decisions,” Sitharaman added.
Former State Bank of India chief financial officer Prashant Kumar was appointed administrator of YES Bank on Thursday, and each depositor will be able to withdraw only up to Rs 50,000 in total till the moratorium is in place, the RBI said in two official statements.
Draft scheme of reconstruction
• SBI’s stake to be locked in for 3 years from the date of capital infusion
• It can reduce stake to 26% after 3 years
• SBI will infuse around Rs 2,650 crore in YES Bank
• RBI to appoint new board of directors; SBI will have two board members
• Employees’ terms and conditions to remain same for one year
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