HYDERABAD: In all likelihood, state-run SBI will take over struggling private lender Yes Bank in the next 28 days flat. SBI may acquire majority stake or 49 per cent for a bill of Rs 2,450 crore or roughly $330 million. A formal announcement is expected on Saturday.
The proposed forced buyout was engineered by the RBI and the Central government as Yes Bank’s self-help plan finding a white knight fell flat, not once but thrice. Traders pulsating with anxiety following the government’s one-month moratorium and board suspension, dumped Yes Bank’s shares in toto. On BSE, the scrip fell 56 per cent to touch an all-time low of Rs 5.55, but eventually recovered to close at Rs 16.20. Investors were also on the edge amid intense activity with SBI Chairman calling on Finance Minister Nirmala Sitharaman, who in turn assured that depositors’ money was safe. The future of Yes Bank and the potential systemic risk its collapse could cause weighed heavily on benchmark Sensex, which itself gyrated on fears of spreading coronavirus, shedding over 890 points.
Technically, this isn’t a government bailout, but one borne by bondholders. As per RBI’s Yes Bank Ltd Reconstruction Scheme 2020, announced on Friday, Yes Bank’s Additional Tier-1 bonds worth Rs 8,800 crore will be written off permanently. SBI or any investor need not honour payments to bondholders.
These bonds (otherwise called debt) helped Yes Bank raise capital to meet the Basel III requirements. They promised high interest but such bonds come with a rider: when trouble hits, financially struggling banks can simply choose not to repay. And if such debt gets written off, it improves bank’s core equity and reduces overall capital requirement.
For Yes Bank, the government-blessed bond write off bumps up the its capital adequacy ratio by 4 per cent. In other words, liquidity in excess of $1 bn, (half of the $2 bn Yes Bank planned to raise) is created with just one stroke.
Sources said, this was one of the key conditions put forth by potential investors in the bank. Besides, investors also sought writing down tier-II bonds aggregating Rs 14,000 crore. “Good thing is, as per the draft scheme, in the near-term, there’s no redact on tier-II bonds,” an official told this newspaper.
That said, the actual extent of Yes Bank’s stressed loans remains unknown. Analysts peg it at Rs 45,000-50,000 crore, though its exact quantum and provisioning thereof too is unclear. To that extent, the bank’s turnaround depends on both fresh capital and loan recoveries. “The investor (SBI) can opt for a rights issue or a QIP to raise capital,” the official added. As per RBI’s scheme, SBI must hold 26 per cent stake for three years or until 2023.
Meanwhile, RBI-appointed administrator Prashant Kumar will have a tenure of one month. When he vacates, a new board comprising a CEO and MD, a Non-Executive Chairman, two Non-Executive Directors and two nominee directors of SBI will takeover.