Reduced investment burden a breather for SBI

With six private sector banks and a housing finance company joining forces with SBI to revive the fortunes of the troubled YES Bank, the investment burden on the public sector lender seems to have come down.

India’s largest bank has been issued and allotted 605 crore equity shares of YES Bank for an aggregate consideration of ₹6,050 crore, according to disclosures made by the private sector bank to the exchanges on March 14.

The Executive Committee of SBI’s Central Board, at its meeting held on March 11, had accorded approval for purchase of 725 crore shares in YES Bank at a price of ₹10 per share, aggregating ₹7,250 crore.

Going by the actual investment made (₹6,050 crore) and the Board approval for purchase of shares (aggregating ₹7,250 crore), the load on SBI to invest in YES Bank has come down by ₹1,200 crore.

However, it remains to be seen if SBI will be required to invest more to prop up YES Bank’s capital as the latter’s Common Equity Tier-I capital has plunged to 0.60 per cent as of December-end 2019 (against the regulatory requirement of 7.375 per cent). This is due to the provision/ write-off for bad loans soaring to ₹22,328 crore in the third quarter (against ₹2,214 crore in the preceding quarter).

Six private sector banks — ICICI Bank (₹1,000 crore), Axis Bank (₹600 crore), Kotak Mahindra Bank (₹500 crore), Federal Bank and Bandhan Bank (₹300 crore each) and IDFC First Bank (₹250 crore) — and Housing Development Finance Corporation (₹1,000 crore) have collectively invested ₹3,950 crore in YES Bank.

SBI and the seven financial intermediaries have together pitched in with ₹10,000 crore by way of equity investment in YES Bank.

According to the ‘YES Bank Limited Reconstruction Scheme, 2020’, notified by the Government on March 13, SBI will hold up to 49 per cent stake, maintaining minimum 26 per cent stake over the next three years in the private sector bank.

Both ICICI Bank and HDFC said their investment is likely to result in their shareholding in YES Bank exceed 5 per cent.

The investment by Axis Bank, Kotak Mahindra Bank, Federal Bank, Bandhan Bank and IDFC First Bank would result in their shareholding being less than 5 per cent each of the new issued and paid-up equity share capital of YES Bank.

There will be a lock-in period of three years from the commencement of the scheme to the extent of 75 per cent in respect of (a) shares held by existing shareholders; and (b) shares allotted to the investors under the scheme. However, the said lock-in period will not apply to any shareholder holding less than 100 shares.

Park money in CDs

With YES Bank’s deposits declining by ₹71,991 crore between September-end 2019 and March 5, 2020, the eight new equity investors may also park monies in the fresh certificate of deposits (CDs) that it will issue.

In its notes to accounts of the third quarter (Q3FY2020) results, the bank said it has additional liquidity from the RBI and expects to raise funds via CD issue to deal with any probable outflow of deposits on withdrawal of moratorium.

The moratorium, which was imposed by the Government on YES Bank on March 5, due to its rapidly deteriorating financial position, will be lifted on March 18 as per the scheme notified by the Government.

CDs are money market instruments issued by scheduled commercial banks (excluding Regional Rural Banks and Local Area Banks), and select all-India financial institutions for raising short-term resources — of not less than 15 days and not more than one year.

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