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Saturday, June 06, 2020

India approves rescue plan for Yes Bank through SBI’s capital injection: report

The plan would throw a lifeline to Yes Bank which has been struggling to raise capital since the middle of last year, as it has faced a surge in bad loans due to the nation’s shadow banking crisis. Yes Bank’s shares jumped as much as 29% on Thursday.

By: Bloomberg | Updated: March 5, 2020 3:05:16 pm
India approves rescue plan for capital-starved Yes Bank: report Signage for Yes Bank Ltd. is displayed at a branch in Mumbai. (Bloomberg: Dhiraj Singh)

The central government has approved a rescue plan for Yes Bank Ltd involving a capital injection by a consortium led by State Bank of India, according to people with knowledge of the matter.

An announcement is expected soon, the people said, asking not to be identified as the information isn’t public. State Bank of India, the country’s largest lender, has been authorized to pick other members of the consortium, the people added.

The plan would throw a lifeline to Yes Bank which has been struggling to raise capital since the middle of last year, as it has faced a surge in bad loans due to the nation’s shadow banking crisis. Moody’s Investors Service cut the bank’s credit ratings in December and in January said its “standalone viability is getting increasingly challenged by its slowness in raising new capital.”

A Finance Ministry spokesman wasn’t immediately available for comment. Representatives for Yes Bank and State Bank didn’t immediately reply to emails seeking comment.

Last month, Yes Bank said it has received non-binding offers from foreign investors including JC Flowers & Co, Tilden Capital, Oak Hill Advisors and Silver Point Capital. However, it wasn’t the first time the bank had announced names of potential investors. In November, the bank’s board disclosed several other names before rejecting most of the offers.

Reserve Bank of India Governor Shaktikanta Das pledged this week in an interview with Bloomberg News that no major bank would be allowed to fail.

Yes Bank’s shares jumped as much as 29 per cent in Mumbai on Thursday, curbing the losses so far this year to 21 per cent. Its dollar bonds surged a record 11 cents on the dollar to 93 cents. Shares in State Bank of India dropped as much as 5 per cent on the news.

(Chart source: Bloomberg)

Yes Bank’s total exposure to shadow lenders and developers — both caught up in a funding crunch since late 2018 — was 11.5 per cent as of September end, filings show. A Credit Suisse Group AG note in April marked Yes Bank out as the lender with the largest proportion of outstanding loans to large stressed borrowers, including Anil Ambani group companies, Essel Group, Dewan Housing Finance Corp and Infrastructure Leasing & Financial Services Ltd.

The bank postponed the release of its December quarter results, citing talks about fund raising. It’s now set to announce the earnings by March 14.

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