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SBI may take up to 49% stake in Yes Bank under RBI bailout plan
Photo Credit: Reuters

The Reserve Bank of India (RBI) has outlined a scheme to revive Yes Bank that proposes State Bank of India purchasing a stake of up to 49% to bail out the beleaguered private-sector lender.

SBI has expressed its willingness to invest in Yes Bank and participate in its reconstruction scheme, the RBI said in a draft proposal on Friday.

The proposal comes a day after the RBI took control of Yes Bank, the country’s fifth-largest private-sector lender, and imposed temporary limits on withdrawals after it failed to raise capital to cover for potential bad loans.

The RBI’s surprise decision unnerved investors and depositors. Shares of Yes Bank plunged almost 60% on Friday. The bank has lost 94% of its market value over the past year due to concerns related to rising bad loans and a capital crunch.

Meanwhile, both RBI governor Shaktikanta Das and finance minister Nirmala Sitharaman tried to pacify depositors, account holders and investors on Friday, even though ratings firms Moody’s and ICRA downgraded their ratings on Yes Bank.

“It will be done very swiftly, it will be done very fast,” Das said in Mumbai, responding to a query about the rescue plan for the bank.

Sitharaman reiterated in a separate briefing that this issue will be resolved speedily. “We are working to protect the interests of the depositors and also those who invested in Yes Bank.”

As per the RBI's draft proposal, Yes Bank’s authorised capital will change to Rs 5,000 crore. The number of issued shares will change to 2,400 crore of Rs 2 each, totalling Rs 4,800 crore. SBI will hold a 49% stake in the reconstructed Yes Bank after the capital infusion at a share price of Rs 10 each, including a premium of Rs 8, the RBI said.

This means that SBI may infuse about Rs 2,450 crore for a 49% stake in the troubled lender, according to the RBI’s draft proposal.

SBI shares tumbled as much as 12% on Friday, in its biggest intraday drop since October 2012, before closing at Rs 270.45 apiece, down 6.19% from the previous close.

According to the proposal, SBI won’t reduce its holding below 26% before completion of three years from the date of infusion of the capital.

SBI, the nation’s biggest bank by assets, had said late on Thursday that its board had given it an in-principle nod to explore an investment in Yes Bank. 

The RBI also named SBI chief financial officer Prashant Kumar as Yes Bank’s administrator. Kumar resigned hours before the announcement to take on the new role, Reuters reported, citing a person in the know. 

Under the draft plan, all employees of the reconstructed Yes Bank will continue with the same salary and terms and conditions for at least one year.

The banking regulator’s moves come after the private-sector lender said last month it had received non-binding expressions of interest from JC Flowers, Tilden Park Capital Management, Oak Hill Advisors and Silver Point Capital. It is not clear if those entities are still keen.

Yes Bank had been trying for many funds to raise as much as $2 billion from investors in a bid to recover from the impact of bad loans.

This wasn’t the first time Yes Bank had said that it received interest from potential investors. In October last year, the bank said it had received a binding offer from a global investor to inject as much as $1.2 billion. That potential investor was Canada-based Erwin Singh Braich and Hong Kong’s SPGP Holdings. However, it later rejected Braich’s offer due to regulatory concerns.

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