The Indian government has notified the scheme of reconstruction for Yes Bank Ltd, taking the lender a step closer to resuming full operations. Yes Bank is currently under a Reserve Bank of India advised moratorium, which includes a restriction on deposit withdrawals.
Authorised Share Capital
According to the government’s notification, Yes Bank's authorised share capital will stand altered to Rs 6,200 crore from Rs 1,100 crore earlier. The number of total equity shares will stand altered to 3,000 crore of Rs 2 each. Authorised preference share capital shall continue to be Rs 200 crore.
State Bank of India, termed as the ‘investor bank’ shall invest in the reconstructed bank at a price of Rs 10, subject to the “condition that post infusion of equity capital, the equity shareholding of the investor bank shall not be less than 26 percent and not more than 49 percent,” the notification said.
On Thursday, SBI said that its board had approved an investment of Rs 7,250 crore in Yes Bank by purchasing 725 crore equity shares.
On Friday, ICICI Bank and Housing Development Finance Corporation Ltd announced that they will be investing Rs 1,000 crore each in Yes Bank's equity. Axis Bank and Kotak Mahindra Bank will be investing Rs 600 crore and Rs 500 crore respectively. Bandhan Bank will be investing Rs 300 crore.
A full list of investors is yet to be detailed.
AT-1 Bonds
The gazette notification was silent on the treatment of additional tier-1 bonds issued by Yes Bank.
In a separate disclosure made to exchanges, Yes Bank said that the additional tier-1 bonds issued by the lender would need to be written down since the bank has reached the ‘point of non viability’ trigger. As per Basel rules which govern these instruments, AT-1 bonds are loss absorbing capital instruments and should be written down when a bank breaches certain thresholds of core equity tier-1 capital.
In its release, the bank said that since a scheme of reconstruction is being proposed under Section 45 of the Banking Regulation Act, 1949 “the Bank is deemed to be non-viable or approaching non-viability and accordingly, the triggers for a write-down of certain Basel III additional tier 1 Bonds("AT 1 Bonds") issued by the Bank has been triggered.”
The bank has Rs 8,415 crore in such bonds outstanding. “Such AT-1 Bonds would need to be fully written down permanently before any reconstruction of the Bank is undertaken,” the lender said.
Lock-In For Investors
While SBI is expected to maintain at least 26 percent stake in Yes Bank for a period of three years, the other investors will see 75 percent of their investment locked in for a period of three years.
According to the notification: There shall be a lock-in period of three years from the commencement of this Scheme to the extent of 75 percent in respect of:
- Shares held by existing shareholders on the date of such commencement
- Shares allotted to the investors under this Scheme
- The lock-in period shall not apply to any shareholder holding less than 100 shares
Voting Rights
According to the notification, an investor, other than SBI, may exercise voting rights to the extent of:
- Its shareholding
- Or 9 percent of the total voting rights of all the shareholders of reconstructed bank
- Or as may be decided by the Reserve Bank, whichever is lower
An investor will be allowed voting right of more than 9 percent and upto 15 percent “provided that the Reserve Bank may after satisfying itself that an investor (other than the investor bank) holding more than 9 percent of the equity shares in the reconstructed bank is ‘fit and proper’ to hold voting rights in excess of 9 percent.”
Board Of Directors
As per the reconstruction plan, Prashant Kumar, former chief financial officer of SBI who was appointed administrator for Yes Bank last week shall assume the position of managing director and chief executive officer.
Former non-executive chairman of Punjab National Bank Sunil Mehta will take charge as the non-executive chairman at Yes Bank. Mahesh Krishnamurthy and Atul Bheda will be appointed as non-executive directors on the new Yes Bank board.
Apart from these members, SBI will have the right to appoint two additional members on Yes Bank's board. Additionally, RBI will also have the right to appoint one or more directors on the new board. Any investor with 15 percent voting rights shall also be allowed to nominate a director on the bank's board.
Employees
Employees of Yes Bank shall be entitled to continue in their current positions at current levels of compensation for one year.
The new board, however, may terminate the services of key management persons at any time.
Moratorium
The moratorium on Yes Bank placed on March 5 shall be removed within three working days of the notification the gazette said. Additionally, the office of the administrator appointed by the RBI shall be vacated within seven calendar days of removing the moratorium, the government said.
The moratorium placed on Yes Bank had limited deposit withdrawals to Rs 50,000 per depositor. The RBI had also superseded the bank's board last week and appointed an administrator to run the bank's affairs.
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