India’s largest public sector lender, State Bank of India (SBI) might be the white knight Yes Bank was hunting for the past few months. But, what does the latest development mean for SBI?
India’s largest public sector lender, State Bank of India (SBI) might be the white knight Yes Bank was hunting for the past few months. According to Bloomberg News, the central government has given a green light to SBI to buy an equity stake in the troubled private sector bank. Reports suggest that SBI will now go ahead and form a consortium to bail out Yes Bank. However, both the banks have issued clarifications saying that they will inform the stock exchanges if any such development takes place. While with this development, Yes Bank could finally have someone to help it stay afloat, experts think that what it means for SBI will become clearer only after clarity emerges.
“It is a positive thing that they are not merging the banks, If this story is true which we do not know so far. Other mergers that have happened in the past, their success rate has been pretty bad,” said Abhimanyu Sofat, Head of Research, IIFL Securities while talking to Financial Express Online. Sofat said that although markets might see a big spike in price of Yes Bank and negative reaction in price of SBI, it is recommended that investors maintain caution. “The critical thing to watch would be percentage dilution of equity taking into consideration the conversion of existing bonds issued by Yes Bank into equity. Upside will be capped until and unless there is more clarity on this yes bank issue on what are the terms of the deals,” he added.
In a filing to the market regulator, SBI said it will abide by the timelines under Regulation 30 of SEBI in disclosing the developments, if any in the matter of Stock Exchanges. Yes Bank on the other hand, said that it has not received any such communication from RBI, Government or from the SBI and that it is unaware of any such decision. Yes Bank added that during its ordinary course of business the bank continues to explore various means of raising capital.
While some experts think that if SBI goes ahead and buys a stake in Yes Bank, the former could benefit from the technology that Yes Bank has secured, some think that if the deal goes through SBI will be making a sacrifice on the cost of its balance sheet.
Independent financial advisor Sandip Sabhrawal said that there is no immediate gain for SBI shareholders with the deal. “For SBI shareholders it will add no value. Growth capital will need to be diverted. However there is a flip side. If the recovery happens and stock price moves up they can sell to some strategic buyer in 1-3 years,” Sabharwal told Financial Express Online.
Amit Jeswani, Founder and CIO Stallion Asset, took to Twitter to commend the government. Jeswani said, “SBI buying out Yes Bank is a great move by the government even though it might cost them Rs 20,000 – Rs 30,000 crores of NPA’s but a bank going down would have cost the economy 20-30x more! Well done GOI.”
Yes Bank has been hunting for investors since Rana Kapoor was edged out of the bank in 2019. The troubled private sector lender is due to post its quarterly results for the third quarter of this fiscal next week. According to reports, Yes Bank recently approached mutual funds for raising $300-$500 million worth of fresh equity capital. Yes Bank share price that has since this morning gained more than 29 per cent, has seen its share price tank more than 85 per cent in the last one year.