Besides State Bank of India, ICICI Bank, Kotak Mahindra Bank, HDFC and Axis Bank Friday said their boards have approved investment of Rs 1,000 crore, Rs 500 crore, Rs 1,000 crore and Rs 600 crore, respectively, in Yes Bank.
Top private banks of the country including ICICI Bank, Kotak Mahindra Bank and Axis Bank will join State Bank of India, the country’s biggest bank, in picking up significant equity stakes in Yes Bank, investing a combined Rs 10,350 crore in the stressed lender.
The Union Cabinet Friday approved a reconstruction plan for Yes Bank under which SBI will acquire 49 per cent stake and the moratorium on deposit withdrawal and other transactions will be lifted within three days of the notification in the government gazette, Finance Minister Nirmala Sitharaman said in a briefing.
Besides State Bank of India that had already announced capital infusion of Rs 7,250 crore, ICICI Bank, Kotak Mahindra Bank, HDFC and Axis Bank Friday said their boards have approved investment of Rs 1,000 crore, Rs 500 crore, Rs 1,000 crore and Rs 600 crore, respectively, in Yes Bank.
This is a unique rescue plan being piloted by country’s major state-owned bank and private sector lenders under guidance of the Reserve Bank of India, aimed at visibly restoring depositors’ trust in the banking and financial system of the country. Such a plan is likely to lower the threat of depositors pulling out their money from Yes Bank en masse when withdrawal restrictions are lifted. A clutch of other private investors are also expected to pitch in with equity contribution.
Yes Bank founder Rana Kapoor on his way to the Mumbai sessions court. (Express photo/Nirmal Harindran)
“The decision to provide a reconstruction scheme keeps at its core the protection of depositors’ interest, keeps at its core providing stability to Yes Bank and also keeps at its core keeping a stable financial environment, banking system,” Sitharaman said.
“After the notification of the scheme, within three (working) days the moratorium will be lifted and within seven days, a new board will be constituted,” Sitharaman said, adding that the notification will be issued “very soon”.
The government’s quick revival plan comes in the backdrop of a sharp fall in the markets over the last four weeks leading to a decline of around 20 per cent in the Sensex at BSE and Nifty at NSE. Market participants say that the intensity of the implementation of reconstruction plan and moving the moratorium period ahead of previous deadline, also stems from the fact that there is a panic situation in the market because of the corona pandemic and a delayed response on the bank’s revival would have further set back depositor and consumer sentiment.
People wait outside a Yes Bank branch to withdraw their money in Ahmedabad. (Reuters)
There will be two directors from the SBI on the new board of the Yes Bank and the administrator will vacate the office within 7 days of notification and new board will take charge.
On March 5, the RBI imposed a moratorium on Yes Bank, restricting withdrawals to Rs 50,000 per depositor till April 3. The RBI also superseded the board and placed it under an administrator, Prashant Kumar, former deputy managing director and CFO of SBI.
There will be two directors from the SBI on the new board of the Yes Bank and the administrator will vacate the office within 7 days of notification and new board will take charge. (Express photo/Nirmal Harindran)
For private investors, there will be a three-year lock-in period on 75 per cent of their investments in Yes Bank. However, the lock-in period for SBI would be only for the 26 per cent of the shareholding.
The authorised capital of the lender has been increased to Rs 6,200 crore from Rs 1,100 crore, she said. In the draft reconstruction plan, the authorised capital was proposed at Rs 5,000 crore. This is being done to ensure higher capital infusion is possible in the bank at a later stage.
On Thursday, SBI said it will invest a total of Rs 7,250 crore in Yes Bank, picking up a maximum of 49 per cent equity in the lender.
The CBI has registered a fresh FIR against Yes Bank founder Rana Kapoor. (Express photo/Nirmal Harindran)
The Yes Bank rescue is different from past rescue efforts in the financial sector, when a failing bank would be merged with a state-owned lender. “This will ensure that the bank is professionally run, with a strong backing, without putting any negative burden on the SBI. Even after writing down stressed assets and making provisions, Yes Bank (after fresh investments) will have significant capital to expand growth,” a government official said.
Previous mergers had mostly negative implications on the acquiring bank. Oriental Bank of Commerce bailed out the troubled lender Global Trust Bank in 2004, which lent heavily to individuals speculating in the stock market. Last year, the Life Insurance Corporation, being nudged by the government, and taken over IDBI Bank, infusing much needed capital alongside the government in the stressed bank.
Yes Bank founder Rana Kapoor was arrested under money laundering charges after the latter allegedly refused to cooperate in the probe.
“This investment (of Rs 1000 crore) is likely to result in ICICI Bank Ltd holding in excess of 5 per cent shareholding in Yes Bank,” ICICI Bank said in a regulatory filing with Bombay Stock Exchange. Yes Bank’s financial results for October-December quarter will be released today. In a statement to the BSE, HDFC said its investment in 100 crore equity shares at Rs 10 each will result in the Corporation holding over 5 per cent stake in Yes Bank, and 75 per cent of the investment will be locked in for three years.
After the initial round of equity infusion in Yes Bank, the government expects next round to happen at market prices. “The price of Rs 10 is being offered only till such time Yes Bank is under RBI’s mandated administration period. After the administrator vacates office, and new management takes charge, then any investment will be at market prices as per SEBI regulations and,” the government official said.