Working to bail out the troubled Yes Bank, Reserve Bank of India Friday unveiled a reconstruction scheme that suggested a clear possibility of the State Bank of India (SBI), India’s largest bank, acquiring a 49 per cent equity stake in the private sector lender. The acquisition cost is likely to be around Rs 11,760 crore as per the face value of Yes Bank share fixed by the RBI.
In the “Yes Bank Reconstruction Scheme, 2020,” issued less than 24 hours after it superseded the board of the bank and appointed an administrator Thursday, the central bank said: “State Bank of India has expressed its willingness to make investment in Yes Bank and participate in its reconstruction scheme”. However, the RBI did not indicate whether other lenders are involved in the scheme.
The scheme states that the investor bank should agree to invest in the equity of the reconstructed bank (Yes Bank) to the extent that post-infusion, it holds 49 per cent shareholding in the bank at a price not less than Rs 10 — face value of Rs 2 and a premium of Rs 8.
Setting conditions for the investment, the RBI said the investor bank should not reduce its holding below 26 per cent before completion of three years from the date of infusion of the capital.
While the authorised capital has been pegged at Rs 5,000 crore, the number of equity shares will stand altered to 2400 crore shares of Rs 2 each, aggregating to Rs 4,800 crore, the scheme says. This means that a 49 per cent stake at Rs 10 per share (including the Rs 8 premium) will cost SBI about Rs 11,760 crore.
Meanwhile, the Enforcement Directorate raided premises associated with Yes Bank’s founder and former managing director Rana Kapoor in Mumbai. Sources said the searches were conducted at multiple locations in the city and were in connection with an alleged case of money laundering. “The agency had registered a case of money laundering against an entity associated with a family member of Kapoor. This entity had received funds from a company that had been granted loan by Yes Bank,” an ED official said.
Earlier in the day, RBI Governor Shaktikanta Das said: “The resolution (Yes Bank) will be done very swiftly, it will be done very fast… 30 days which we have given is the outer limit. You will see very swift action from RBI.”
In a press conference after the RBI announced the plan for Yes Bank, Finance Minister Nirmala Sitharaman said: “We are ensuring customers’ interests are protected. We can assure all depositors that their money is safe.” She said a new board will be put in place to run the bank and employment and salaries of the bank’s employees will be protected for one year.
The RBI had to take action to protect the bank as genuine attempts by the management to raise capital did not fructify on three occasions, she said.
Apart from investigative agencies, RBI will also assess the factors behind a problem of this “size and scale” at the bank, she said. The Securities and Exchange Board of India has also started its investigation, especially issues relating to allegations of insider trading.
To a query on whether the financial system is safe after a series of failures such as DHFL, IL&FS, PMC Bank, the Minister said: “I am closely monitoring every institution which requires that kind of monitoring along with RBI.”
Sources said SBI will also rope in private investors, including banks, to form a consortium that will infuse capital in Yes Bank and stabilise the bank. On queries regarding the amount of funds to be put in by SBI, Sitharaman said that RBI and SBI will work on these details.
On Thursday, hours before the RBI slapped a one-month moratorium on Yes Bank, sources said a consortium of investors led by SBI was in talks to pick up a significant stake in Yes Bank to provide much-needed equity support and, thus, ensure stability in the financial system. There were indications that Life Insurance Corporation (LIC) and some private sector banks could be part of the consortium. However, the RBI surprised the markets by superseding the board of Yes Bank and capping withdrawals at Rs 50,000 per depositor.
Meanwhile, according to the reconstruction scheme, the investor bank will have two nominee directors appointed on the board of the reconstructed bank. The RBI may appoint additional directors under the Banking Regulation Act, 1949. “It will be open to the board of directors of Yes Bank to co-opt more directors to it,” it said.
The scheme says that all deposits and liabilities of the reconstructed bank, except as provided in the fineprint, and the rights, liabilities and obligations of its creditors, will continue in the same manner and with the same terms and conditions, completely unaffected by the scheme.
“All the employees of the reconstructed bank will continue in its service with the same remuneration and on the same terms and conditions of service (T&C), including terms of determination of service and retirement, as were applicable to such employees immediately before the appointed date, at least for a period of one year,” the proposal said. The board of directors of the reconstructed bank will, however, have the freedom to discontinue services of key managerial personnel (KMPs) at any point of time after following due procedure, it said.
The scheme also states that there will be no change in offices or branch network of the reconstructed bank — they will continue to function in the same manner and at the same places as they were functioning prior to the effective date without in any way being affected by this scheme, it noted.
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