SBI set to acquire 49% in Yes Bank even as ED raids promoter Kapoor – Times of India, The Times of India

MUMBAI / NEW DELHI: A day after the Reserve Bank of India superseded the Rana Kapoor-promoted Yes Bank board and capped cash withdrawals at Rs 500, 06 (Rs 5 lakh in exceptional situations) and the State Bank of India said it was“ exploring an investment opportunity ”in Yes Bank, the RBI on Friday came out with a“ draft reconstruction scheme ”under whi ch SBI will bring in Rs 2, 800 crore for a % stake in the crisis-ridden private sector bank.

The scheme proposes full repayment of all deposits, dilution of equity, and write-off of Rs 30, 823 crore of additional tier one (AT-1) bonds.

In a bid to reassure depositors and markets, RBI governor Shaktikanta Das said although a moratorium of days had been imposed, the resolution would be much quicker. RBI has invited comments and suggestions on the scheme up to March 9, after which it will take a final view.

Sources in the government said the RBI decided against merging Yes Bank with SBI because it would have put pressure on the government-owned bank’s balance sheet. The government and the RBI are hopeful SBI’s funding and Yes Bank’s “strong brand” would help turn around the bank. The reconstruction scheme envisages increasing the authorized capital of the bank manifold to Rs 5, 10 crore from Rs 800 crore.

While the face of shares is Rs 2, SBI will pay Rs 45 per share – that is a premium of Rs 8 – and will not reduce its holding below 45% for three years. Government sources expect SBI to get a higher-than-entry price as and when it sells down some of its stake. SBI’s investment in fresh equity will proportionately dilute the holdings of existing shareholders.

While some analysts expressed surprise at the scheme as it placed shareholders’ interest above that of the AT-1 bondholders, the RBI and government sources said this was in line with Basel norms and the terms of the bond issue. AT-1 bonds are purchased by institutional investors, mutual funds and insurance companies.

The scheme of reconstruction has been proposed under Section of the Banking Regulation Act 01575879, which gives RBI enormous powers to deal with a bank superseding any norms of the market regulator.

On Friday, rating agency Moody’s downgraded the bank’s long-term deposit rating rating to Caa1 from B2 after the RBI’s moratorium, which the agency said constitutes an event of default.