The State Bank of India board has given in-principle approval to consider an “investment opportunity” in YES Bank. In a late night statement on Thursday, SBI, however, said no decision had yet been taken to pick up stake in the bank.
Highly-placed sources indicated a rescue plan involving SBI and Life Insurance Corporation of India (LIC) was being discussed and an announcement in this regard might be made soon.
While the finer details of the deal are being worked out, it is anticipated that both SBI and LIC together will take a 51 per cent stake in the bank, with a one-year lock-in period.
LIC already owns 51 per cent in IDBI Bank, which it acquired in 2018 to infuse capital into the troubled lender.
Sources said both the state-owned organisations would hold the shares as investment. LIC already owns 8 per cent in the private lender.
The sources said YES Bank had to exercise its call option on perpetual bonds or additional tier 1 (AT1) bonds of Rs 80 crore on March 5. “The bank hasn’t exercised its call option,” said a source. Failure to have met the bond obligation is said to be the trigger for the concerted action.
Recently, CARE Ratings downgraded YES Bank’s rating on bonds worth Rs 21,016 crore to credit watch with negative implications. These bonds were already placed under negative rating.
On the rescue plan, experts said the priority would be to restructure the balance sheet. “Assets need to be brought down to realisable value and that rundown will indicate how much capital is required for the bank,” said a banking consultant.
“The government cannot afford another failure of a large financial institution,” said Shailesh Haribakthi, chairman, DH Consultants. YES Bank’s deposits stood at Rs 2.09 trillion on September 30, 2019, while its advances totalled Rs 2.24 trillion.
The bank has registered slippages of Rs 12,000 crore so far in FY20, while it has placed Rs 30,000 crore of loan assets under the watch list. Agreeing with Haribhakti, Ashvin Parekh, managing partner, Ashvin Parekh Advisory Services, said regulatory intervention was highly required in the best interests of deposit holders. However, he said a lot of regulatory dispensation would have to be made to accommodate a rescue package for YES Bank. “A lot has changed since the Global Trust Bank days on the regulatory front and it may not be very easy to put a plan together,” he cautioned.
The bank has delayed publishing its December quarter results by a month to March 14. Sources indicate that there could be delay in disclosing the results after Thursday’s action. “The focus will first be on assessing the quantum of bad loans, without which announcing numbers is meaningless,” said a banker in the know.
As for global investors including JC Flowers, Tilden Park Capital and Capital Management having evinced interest in the bank, a source said once an initial bailout was formulated, conversation may restart with these investors. “They have directly been in talks with the RBI and when we have clarity on bad loans, it will be easier to approach these investors again,” he said. It is learnt that the investors had indicated that they would not put their money into YES Bank till they were sure that it wouldn’t be for another round of bad loan write-offs.