New Delhi/Mumbai:
Public sector lender SBI along with some other financial institutions will bail out capital-starved Yes Bank, with the government giving the go-ahead, sources said on Thursday.
In a day of rapid developments, which also included a board meeting of SBI, there were reports that LIC has been asked to team up with the public sector bank for the stake buy. Together, their holding has been pegged at 49 per cent.
LIC already owns 8 per cent of the crisis-hit Yes Bank.
Significantly, a few weeks ago amid speculations of a state bailout of Yes Bank, SBI Chairman Rajnish Kumar had said the troubled bank will “not be allowed to fail”.
The Mumbai-headquartered Yes Bank, once the darling of investors, has been facing difficulties ever since new chief executive Ravneet Gill took charge last March and revealed massive stress in the loan book. It had to provide against the stress and was also forced to go slow on fresh loans.
Yes Bank has been struggling to raise USD 2 billion in equity for the last few months. Many proposals came up for discussions, but none fructified.
Reports have pointed out to difficulties on the capital position at Yes Bank, speculating if it can meet the minimum thresholds by March in the absence of an infusion.
Such a deal, if it happens, will also be significant because it will be the first time in many years that a state-run entity has rescued a private sector universal bank.
Following the 2008 financial crisis, there was a huge outcry in the developed markets like the US for public money being used to bail out erring private entities.
Sources said the government has cleared a plan for the SBI-led consortium to acquire a controlling stake in Yes Bank.
There was a discussion on the issue at SBI’s board meet in Mumbai, but it was not immediately clear if any decision was made.
Action is likely to shift to the national capital from here on, because picking up a stake in any bank may require changes in the State Bank of India Act as well, sources said.
The ongoing Budget session of Parliament offers the government a window to ensure that needful amendments are passed, they said.
This will also be the second universal bank after IDBI Bank where LIC will be playing the role of a knight in shining armour.
Reports of the government asking SBI to help Yes Bank led to a huge rally in the private sector lender’s stock, which closed 25.77 per cent up at Rs 36.85 at the end of trade. The total market capitalisation of the bank stands at Rs 9,398.6 crore.
However, brokerages were not enthused by the rally and at least two of them said the stock is now worth Re 1 per piece.
Terming it as a “quasi sovereign bailout”, J P Morgan said, “We believe forced bailout investors will likely want the bank to be acquired at near zero value to account for risks associated with the stress book and likely loss of deposits.”
Interestingly, a few months ago, SBI chief Rajnish Kumar had opined that Kotak Mahindra Bank is best suited to take over the troubled Yes Bank.
He had also said Yes Bank is a good franchise with a visible brand and right technology investments.
Yes Bank’s share price has declined by over 80 per cent from a peak of Rs 400 since the removal of its co-founder and chief executive Rana Kapoor by the RBI on corporate governance concerns following two consecutive years of bad asset under-reporting to the tune of over Rs 10,000 crore.
Kapoor holds only 900 shares of the bank now, after defaulting on a loan against pledged shares and the lenders revoking the securities in September last year.
Over 62 per cent of the Yes Bank book is high-value corporate loans, and some of its bets on infrastructure, energy, non-banks and media space have backfired for the lender, leading Gill to flag the potential stress of Rs 10,000 crore.
Even as it was struggling to get capital, the board of Yes Bank had earlier this year cleared a new capital raising plan of Rs 10,000 crore.
According to reports, some investors continue to be interested in the bank, but are wary. SBI and LIC coming on board is expected to boost their confidence, sources said on Thursday.
In a clarification to stock exchanges on Yes Bank-related news reports, SBI said it would disclose developments, if any, as per Sebi regulations.
“… we will abide by the timelines under Regulation 30 of Sebi (LODR) Regulations 2015 in disclosing the developments, if any in the matter to stock exchanges,” it said.
Meanwhile, Yes Bank said as on date, it has not received any such communication from the RBI or any other government or regulatory authorities or from the SBI.
Any deal will also have to pass regulatory muster.
It can be noted that former deputy governor of RBI R Gandhi sits on the board of Yes Bank.
The private sector lender is set to announce its quarterly earnings for October-December 2019 period on March 14, after it requested for a delay because of its capital raising plans.
