Money & Banking

SBI to be the white knight for YES Bank in RBI’s rejig scheme

Our Bureau Mumbai | Updated on March 06, 2020 Published on March 06, 2020

State Bank needs to pick 49 per cent in private lender

Moving quickly to find a resolution for the troubled YES Bank, the Reserve Bank of India on Friday put together a draft scheme of reconstruction, with State Bank of India emerging as a “white knight” to put the private sector bank back on the rails.

India’s largest bank has expressed its willingness to invest in YES Bank and participate in its rehabilitation. Depositors will heave a sigh of relief that SBI is coming on board their bank. They will be assured about their deposits.

As per the draft ‘YES Bank Ltd Reconstruction Scheme, 2020’, the investor bank has to agree to invest in the equity of the reconstructed bank to the extent that post infusion it holds 49 per cent shareholding in the bank at a price not less than ₹10 [Face value of ₹2 and premium of ₹8].

Further, the investor bank cannot reduce its holding below 26 per cent before completion of three years from the date of infusion of the capital.

Due to its rapidly deteriorating financial position, the private sector bank was placed under an order of moratorium by the government on March 5. The same will be effective up to April 3, 2020. During the moratorium period, deposit withdrawals have been capped at ₹50,000 per depositor.

Further, the RBI superseded the bank’s board and appointed Prashant Kumar, ex-Deputy Managing Director and CFO of State Bank of India, as its Administrator.

As per the draft reconstruction scheme, from the appointed date, the authorised capital will stand altered to ₹5,000 crore (from ₹1,100 crore) and number of equity shares will stand altered to 2,400 crore (from 450 crore) of ₹2 each aggregating to ₹4,800 crore.

From the appointed date, the office of the Administrator of YES Bank will stand vacated, and a new board, comprising MD & CEO, non-executive Chairman, two non-executive directors and two other directors, will stand constituted.

The investor bank will have two nominee directors appointed on the board of the reconstructed bank. The RBI may appoint Additional Directors. It will be open to the board of directors of YES Bank to co-opt more directors to it.

The members of the board so appointed will continue in office for one year, or until an alternative Board is constituted by the bank through the normal procedure laid down in its Memorandum and Articles of Association, whichever is later.

As per the scheme, all the deposits with and liabilities of the reconstructed bank, except as provided in the scheme, and the rights, liabilities and obligations of its creditors, will continue in the same manner and with the same terms and conditions, completely unaffected by the scheme.

On employees

All the employees of the reconstructed bank will continue in its service with the same remuneration and on the same terms and conditions of service.

The offices and branches of the reconstructed bank will continue to function, as usual. It can even open new offices and branches or close down existing offices or branches.

The RBI has invited suggestions and comments from members of public, including the banks’ shareholders, depositors and creditors on the draft scheme by March 9. The RBI will take a final view soon thereafter.

The instruments qualifying as Additional Tier 1 capital, issued by the YES Bank under Basel III framework, will stand written down permanently, in full, with effect from the Appointed Date. According to credit rating agency ICRA, the Bank has ₹10,800 crore worth of Basel III Compliant Additional Tier-I Bonds.

What the draft says

* All deposits with and liabilities of the bank unaffected by the scheme

* All employees will continue in its service with the same remuneration and terms and conditions of service

* Offices and branches will continue to function, as usual

* The bank can even open new offices and branches or close down existing offices or branches

Published on March 06, 2020

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