State Bank of India will acquire a 49 percent stake in Yes Bank Ltd. at not less than Rs 2,450 crore, according to a draft rescue plan proposed by the Reserve Bank of India after seizing control of the struggling private lender citing its poor financial position.
The RBI, which advised the government to place Yes Bank under one-month moratorium, has placed the draft restructuring scheme in public domain for comments up to March 9.
According to the scheme:
- Yes Bank’s authorised capital shall stand altered to Rs 5,000 crore from the current Rs 800 crore.
- The number of equity shares will be increased to 2,400 crore from the current 255 crore (face value Rs 2/- each) aggregating to Rs 4,800 crore.
- SBI shall agree to invest in the equity of the reconstructed bank such that post infusion it holds 49 percent.
- The capital infusion will be at not less than Rs 10 per share (Face value Rs 2, Premium Rs 8)
- SBI shall not reduce its holding below 26 percent for three years from date of capital infusion.
The scheme will write down all AT1 capital of the bank.
The instruments qualifying as additional tier 1 capital, issued by the Yes Bank Ltd. under Basel III framework, shall stand written down permanently, in full, with effect from the Appointed date.Yes Bank Draft Scheme Of Reconstruction
Changes To Articles, Board, Management
The draft scheme envisages deletions from Articles of Association of Yes Bank - articles pertaining to rights of the erstwhile promoters of the bank (Rana Kapoor and Madhu Kapur). The rights being deleted include
- to recommend the appointment of three "IP Representative Directors".
- to recommend the name of Chairman and CEO
- recommendations of promoters to appoint Whole Time Directors
- WTDs to necessarily be out of board members
Yes Bank’s board will be reconstituted—SBI may appoint two directors, RBI may appoint Additional Directors and the board may co-opt more as needed.
The members of the Board so appointed shall continue in office for a period of one year, or until an alternate Board is constituted by Yes Bank Ltd. through the normal procedure laid down in its Memorandum and Articles of Association, whichever is later.Yes Bank Draft Scheme Of Reconstruction
All Deposits Safe
All deposits and liabilities of the reconstructed bank will be unaffected by the scheme. It also maintains current contracts, deeds, bonds, agreements, powers of attorney, grants of legal representation and other instruments of whatever nature.
The scheme proposes continuation of services of current employees at the same terms, for atleast one year.
Board of Directors of the Reconstructed Bank will however, have the freedom to discontinue the services of the Key Managerial Personnel (KMPs) at any point of time after following the due procedure.Yes Bank Draft Scheme Of Reconstruction
There will be no changes in the branch network or offices of Yes Bank on account of the scheme, though once reconstructed the bank may consider making changes.
Finally, under the sweeping powers of Section 45 of the Banking Regulation Act, this scheme will override all other laws and regulations. Hence, no shareholder approval will be required, nor will SEBI takeover regulations apply. Once the government notifies the final scheme, it will come into effect.
But...
This draft scheme comes within a day of Yes Bank having been placed under moratorium by the government. And while the speed may be appreciated by some, the structure of the scheme does raise a few questions...
Isn’t Rs 2,450 crore too small a rescue package to start with given the size of the problem at Yes Bank?
Why is SBI paying a premium of Rs 8 per share when in such a situation equity should amount to nothing?
Why protect equity while writing down AT1 capital?
And, why has RBI picked this structure over a merger?
SBI is expected to offer more clarity on the scheme in a press conference on Saturday.
Watch| EY’s Abizer Diwanji discuss the contours of the Yes Bank draft reconstruction scheme.
Correction: The total investment by SBI has been corrected to Rs 2,450 crore based on acquisition of 245 crore shares at Rs 10 each.
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