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Yes Bank plan: SBI chief rules out merger, says investors interested

On Friday, the RBI had unveiled a reconstruction scheme, indicating the possibility of SBI acquiring a 49% equity stake in Yes Bank which was put under moratorium for 30 days.

By: ENS Economic Bureau | Mumbai | Published: March 8, 2020 4:54:25 am
Yes Bank, Yes Bank crisis, Yes Bank fiasco, SBI to invest in Yes Bank, Yes Bank RBI, Reserve Bank of India Yes Bank, Business news, Indian Express Outside a Yes Bank branch in Mumbai, Saturday. (Express Photo by Nirmal Harindran)

THE STATE Bank of India (SBI), which is set to buy up to 49% equity stake in troubled Yes Bank, as proposed in the Reserve Bank of India’s reconstruction plan, said on Saturday that several potential investors have approached it to form a consortium to pick up stake in the private sector lender.

While SBI will initially invest Rs 2,450 crore, the investment can later increase to over Rs 10,000 crore depending on the due diligence, final valuation, investor interest and the capital requirement, SBI Chairman Rajnish Kumar said. SBI has time till Monday to respond to the RBI on its Yes Bank draft scheme.

Declining to name other investors who have showed interest, Kumar said Yes Bank needs a credible investor like SBI. He, however, ruled out a merger of the bank with the public sector bank and maintained that depositors’ money in Yes Bank is “not at risk”.

On Friday, the RBI had unveiled a reconstruction scheme, indicating the possibility of SBI acquiring a 49% equity stake in Yes Bank which was put under moratorium for 30 days.

Addressing a press conference, Kumar said: “What we have to keep in mind is that whatever and whoever is the co-investor, there are two or three things. One is that what are the RBI guidelines? So anybody who wants to go above 5%, they have to make the fit and proper criteria. If they are foreign institutional investors, they have to be eligible under the FDI or FPI guidelines. So there are certain regulatory norms when it comes to investment in the financial sector, particularly in the banks.”

Kumar said there were initial discussions about other investors joining the RBI reconstruction plan. “We will discuss with them about the possibilities, of course in consultation with the RBI. So, no firm decision, because, as I said, the processes that we have received in the draft scheme have to be vetted and examined by the investment team with their due diligence in the shortest possible time with whatever available information. And then it goes to the board,” he said.

“Whatever is final will be communicated to the stock exchange faster than whatever I’m saying. These are the thoughts, but the final decision rests with the board of SBI,” he said.

“What I’m saying is that even in troubled institutions, whether it is an NBFC or HFC or a bank, there is considerable investor interest in the financial sector of the country. So investors are seeing an opportunity here,” he said.

On the 30-day timeline, the SBI chairman said: “We will work overtime 24×7, and whatever is within our capability, we will try that the resolution plan is approved and implemented much before the timeline set by the RBI. SBI team will not be found wanting on this.”

Saying that the depositors’ money in Yes Bank is safe, Kumar said: “Maybe because of the Rs 50,000 requirement (cap on withdrawals), it is a matter of a few days that there is some inconvenience. But as far as safety of their money is concerned, Finance Minister and Governor of the RBI, everybody has assured, and I feel it is the right assurance, that depositors’ money is not at all at risk.”

“So, hopefully, this proposed investment budget approved by the board will also not be against the interest of the shareholders of SBI. We have done our maths. All our capital issues will not be impacted. There is a very marginal impact on the bank’s capital adequacy ratio. Whatever is the regulatory minimum, we maintain, as a policy, 50 basis points above that. So, we will continue to do that without any further raising of capital from the market. There is no question of requesting the government for any capital,” he said.

On SBI’s Rs 2,450 crore initial investment, Kumar said, currently, there are 255 crore shares outstanding. “And as per the draft scheme, we can take up to 49%. The only requirement is that there is a lock-in of 26% for three years, so it sets a boundary… when you’re 26% for three years, that is a sort of an obligation. Anything above that, up to 49%, depends on what is the interest from other investors, what is the total capital required… If today, SBI goes solo and picks up 49% stake, then the immediate investment requirement is Rs 2,450 crore.”

Explaining the details of SBI’s investment, Kumar said: “There is a limit in the sense that what the draft scheme says is that the authorised capital of the company is being increased to 2,400 crore shares and the face value of Yes Bank share is Rs 2. So we have Rs 4,800 crore authorised capital. Presuming again, it is a presumption, Yes Bank needs Rs 20,000 crore and you issue 2,000 crore shares at Rs 10, so that makes it Rs 20,000 crore. Presuming again that SBI picks up 49%, which we may pick up or may not pick up. But 26% of Rs 20,000 crore, that is a commitment.”

“If tomorrow the capital is Rs 20,000 crore, we will pay 26% of the scheme. That is the requirement. So, our minimum investment, over a period of time, is 26% of say Rs 20,000 crore, that makes it about Rs 5,500 crore. And Rs 2,450 crore, we have said from the beginning… this is the total commitment if it is 26%, and if it is 49%, it may be Rs 10,000 crore,” he said.

On March 5, the RBI superseded the board of directors of Yes Bank for a period of 30 days “owing to serious deterioration in the financial position” of the bank and capped the deposit withdrawals at Rs 50,000 per depositor. The central bank said “this has been done to quickly restore depositors’ confidence in the bank, including by putting in place a scheme for reconstruction or amalgamation”. The RBI also appointed Prashant Kumar, former Deputy Managing Director and CFO of State Bank of India, as the administrator of the private sector bank.

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