HDFC, Kotak Mahindra Bank, ICICI Bank, and Axis Bank are among the entities that will come to the rescue of troubled YES Bank, even as the government gave nod to its revival plan on Friday.
The YES Bank reconstruction plan will include an equity investment of at least Rs 11,350 crore from various entities, including multiple private lenders.
HDFC Ltd and ICICI Bank will invest Rs 1,000 crore each, Axis Bank will chip in with Rs 600 crore, and Kotak Mahindra Bank will put Rs 500 crore in the equity shares of YES Bank, according to the decisions taken by the respective boards on Friday. SBI had committed to investing Rs 7,250 crore on Thursday.
According to sources, Life Insurance Corporation (LIC) will invest over Rs 1,000 crore in YES Bank. LIC already holds 8.06 per cent in the bank. All the investors will be buying stakes in YES Bank at Rs 10 per share.
As a result, both HDFC Ltd and ICICI Bank will pick up more than 5 per cent in YES Bank. ICICI Bank and SBI are considered to be domestic systematically important banks by the RBI. In other words, these are ‘too big to fail’. HDFC Ltd holds a stake in two other banks – HDFC Bank (another systematically important bank) and Bandhan Bank.
The Union Cabinet led by Prime Minister Narendra Modi met on Friday to approve the ‘YES Bank Reconstruction Scheme, 2020’ and decided to raise the authorised capital of the ailing bank over five times from Rs 1,100 crore to Rs 6,200 crore to allow more investments to flow in.
“This was done to accommodate immediate and subsequent raising of capital requirements. State Bank of India will invest up to 49 per cent of the equity in YES Bank,” Finance Minister Nirmala Sitharaman said at a media briefing on Friday.
Sitharaman said the scheme’s objective was to safeguard depositors and ensure the stability of the bank and financial systems.
There will be a lock-in period of three years of a part of the investments made by these banks into YES Bank. As much as 26 per cent of the SBI’s equity investment and 75 per cent of the equity pumped in by other players will be retained in YES Bank for three years.
Amitabh Chaudhry, managing director and chief executive officer of Axis Bank, said, “The overall banking and financial system in India continues to remain resilient, even as the global economy is facing some challenges. Axis Bank strongly believes in the long-term prospects of the banking industry in India and we are happy to have an opportunity to contribute to the stability of the system.”
The restrictions put on YES Bank on lending and withdrawal activity will be lifted “on the
third working day at 6 pm” after the notification comes out.
The RBI, which superseded the board of YES Bank by appointing an administrator on March 5, had imposed a moratorium on it under which each depositor was able to withdraw up to Rs 50,000. The bank wasn’t allowed to do fresh lending, too.
Former SBI chief financial officer Prashant Kumar was appointed administrator of the bank. He will be replaced by a new board “after seven calendar days from the cessation of the moratorium”. If the timelines are followed, the moratorium on the bank will be lifted on March 18 and a new board will be in place by March 25.
The finance minister refused to comment on the treatment of the additional tier-1 (AT-1) bonds in the final notification related to YES Bank, saying the matter was in court.
In the draft scheme, the RBI had decided to write down the AT-1 bonds of YES Bank.
The stock price of YES Bank went up by 2 per cent to Rs 25.55 on Friday.