SBI to Pick Up 49% Stake in Yes Bank, Says Draft Rescue Plan

While all deposits will be protected, the reconstructed bank proposes to write down all of its AT-1 bonds, which is tough news for several mutual fund houses.

New Delhi: The Reserve Bank of India (RBI) on Friday evening made public a draft reconstruction plan for Yes Bank, which proposes that the State Bank of India (SBI) will pick up a 49% stake in the beleaguered private sector lender.

This draft rescue plan – which will ensure protection and continuation of all deposits and loans – has been placed in the public domain for feedback from investors, shareholders and the general public.

The contours of the reconstruction scheme envisage expanding the number of Yes Bank’s equity shares to Rs 2,400 crore. The private sector lender currently has a little over 250 crore shares.

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“The Investor bank [SBI] shall agree to invest in the equity of the reconstructed bank to the extent that post infusion it holds 49% shareholding in the reconstructed bank at a price not less than Rs 10 (face value of Rs 2 and premium of Rs 8),” the draft plan notes.

This implies that SBI may invest up to Rs 2,500 crore in the private sector lender.

While deposits and bonds will be protected, the draft plan also clearly states that the reconstructed bank will write down all Basel III Additional Tier-1 (AT-1) bonds, a decision that will affect many mutual funds, the most prominent of which include various schemes of Nippon India Mutual Fund.

On Friday morning, the company marked down all of its Yes Bank perpetual bonds to zero.

Other key aspects of the draft plan include:

1) SBI shall not reduce its holding below 26% before completion of three years from the date of infusion of the capital.

2) All employees of the reconstructed Yes Bank will continue in its service on the same salary and employment conditions for a minimum period of 1 year.

3) The offices and branches of the Reconstructed bank shall continue to function in the same manner and at the same places they were functioning prior to the effective date, without in any way being affected by this scheme.

4) No accountholder shall be entitled to get any compensation from the reconstructed bank on account of the changes occurred in the Reconstructed bank by virtue of the Scheme.

At a press conference on Friday evening, Finance Minister Nirmala Sitharaman acknowledged that Yes Bank account holders had gone through a great deal of pain and inconvenience and promised that both the Centre and the RBI would undertake a probe into how the private sector lender’s financial situation snowballed out of control.