SBI to bail out Yes Bank: Govt OKs equity stake acquisition plan; allows SBI to form consortium

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March 05, 2020 11:47 AM

Struggling Yes Bank may have finally found a saviour in State Bank of India. The government has reportedly approved a plan for India’s largest bank SBI to buy an equity stake in Yes Bank.

Yes Bank is in a firefighting mode, struggling to improve its financial health, clean up NPAs, and stabilise performance, ever since erstwhile promoter Rana Kapoor was edged out of the bank.

Struggling Yes Bank may have finally found a saviour in State Bank of India. The government has reportedly approved a plan for India’s largest bank SBI to buy an equity stake in Yes Bank, Bloomberg News reported citing unidentified sources. The government has also reportedly allowed SBI to form a consortium to bail out Yes Bank, and also to choose other partners in the consortium. Yes Bank is in a firefighting mode, struggling to improve its financial health, clean up NPAs, and stabilise performance, ever since erstwhile promoter Rana Kapoor was edged out of the bank. Yes Bank has been hunting for investors for the past few months, but has failed to raise capital after repeated attempts.

Yes Bank share price gained as much as 13 per cent on Thursday morning after the news broke. Yes Bank shares were trading at Rs 32.5 apiece on NSE in the late morning. SBI share price dropped up to 3 per cent, but soon recovered to swing back to green.

However, the news may not have been received as positively by experts across the board. The move will be a sacrifice that State Bank of India will have to make, Abizer Diwanji, Partner and Financial Services Leader, EY, said in an interview to ET Now. On the other hand, veteran Chartered Accountant Shailesh Haribhati said the move could be mutually beneficial for both the banks. “Yes Bank’s advantage to SBI will be on the basis of some technology that Yes Bank has secured which SBI will get its hands on now. I endorse the move completely. It will be on the SBI Board and senior management to turn it into their advantage. The quality asset and manpower on both sides of this deal should make this a good move,” Haribhakti said.

From a regulatory standpoint, SBI can acquire up to 10 per cent equity stake in Yes Bank without needing any change in regulations, VG Kannan, former CEO, Indian Banks Association, said to CNBC TV18.

Yes Bank Managing Director Ravneet Gill has been trying to rope in investors to help the private sector bank stay afloat. Yes Bank has seen its share price fall 86 per cent in the last one year amid a rise in non-performing assets (NPA) and lack of clarity on who will help the bank raise the required funds. The board of Yes bank had rejected an offer made by Canadian investor Erwin Singh Braich to invest $1.2 billion in the bank. According to reports, Yes Bank had recently decided to bring on-board former Co-CEO of Deutsche Bank Anshu Jain to help in fundraising.

Reports recently suggested that the private bank had approached mutual funds for raising fresh equity capital worth $300-$500 million. Recently, Yes Bank received non-binding expressions of interest from investors including JC Flowers, OHA UK and Silver Point Capital. YES Bank had plans to raise up to $2 billion to shore up its capital base.

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