The continued use of depositors’ money by state-run financial institutions to rescue private banks is raising eyebrows in banking and political circles.
State Bank of India will be initially infusing Rs 2,450 crore into Yes Bank in an RBI mandated rescue package and top bankers point out that this infusion of capital by buying 49 per cent stake in the troubled bank has not followed the normal methodology of evaluating share price by using merchant bankers.
In all, SBI will be buying 245 crore newly issued shares at a face value of Rs 2 and a premium of Rs 8, against a 'fair price’ of Rs 1 according to analysts. Macquarie in a note on Thursday had said given Yes Bank’s low net worth, below investment grade valuation and the fact that part of its bonds were being wiped out, the “current net worth of the bank is zero” and buyers should get it for Rs 1.
"It seems we are nationalising losses and privatizing profits…" quipped Bishwajit Bhattacharyya, former Additional Solicitor General of India, who has experience working as country head of a foreign bank.
“If this decision to pay such a high premium for a junk share had been done by any bank board on its own, investigations and raids by various agencies would have followed,” pointed out the director of a Delhi-based state-run bank. “However, in this case, it is RBI mandated. Nevertheless, the board of SBI may have a tough time explaining to shareholders why this purchase was made at the price mandated,” he added.
Former Finance Minister P Chidambaram too termed the rescue plan as “bizarre” and has said it would have been better for SBI to take over “Yes Bank’s loan book at Rs 1 to assure depositors that their money would be returned.”
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The SBI rescue package which SBI claims was 'voluntarily' taken on by it, follows a similar deal for IDBI which was bought over at huge price by LIC. “Life Insurance Corporation invested some Rs 21,624 crore in IDBI including buying 26 per cent stake at a price of Rs 61.73 a share. That share price has now dropped to Rs 25.10,” pointed out finance ministry officials.
In both cases, officials point out that the deals were mandated by the regulator or the state but the money used was that of depositors.