What Brokerages Say About SBI’s Rescue Plan For Yes Bank 

State Bank of India plans to pick up 49 percent stake in Yes Bank Ltd. for Rs 2,450 crore as it stepped into to rescue the struggling private lender after the Reserve Bank of India seized control and capped withdrawals citing deteriorating financial position.

India’s largest bank will then look for investors to pick up stake in Yes Bank while maintaining at least 26 percent holding for at least three years. SBI’s contribution won’t eventually exceed Rs 10,000 crore, Chairman Rajnish Kumar said.

The draft also proposes to write down additional tier 1 bonds of the private lender.

Here’s what brokerages had to say about the draft reconstruction plan:

Nomura

• RBI’s takeover adds to risks related to financial stability and growth.
• A risk of deposit outflows from Yes Bank when caps are withdrawn.
• Yes Bank’s troubles symptomatic of wider credit risks that still lurk in the financial system including the telecom and power sectors and owing to the fallout of the shadow banking crisis on real estate developers and small businesses.
• Expects weak growth and lagged effects of tight credit conditions to impact the asset quality of shadow banks and the banking sector in the coming quarters.

Macquarie

• The question that arises is how easy would it be to bring in new investors considering the lack of investor interest in the past.
• Surprised that the reconstructed plan provides for complete write-off of AT1 bonds worth Rs 8,800 crore.
• Yes Bank ratings and target price under review.

Investec

• While it might seem that equity holders are protected over AT1 bondholders, future capital infusions would eventually dilute the about 51 percent stake of minority shareholders.
• The reconstituted bank would have a common equity tier-1 capital of 7 percent with one round of initially disclosed stress pool of Rs 3,1400 crore sub-investment grade assets recognised.
• Assuming SBI brings down its stake to 26 percent and the future capital raise happens at Rs 10 (same price), the total capital infusion from all investors could be around Rs 20,000 crore.
• For SBI, the impact of Rs 10,000 crore on book value per share in FY20E and FY21E shall be around 4 percent and about 40 basis points on CET1.
• The current draft scheme is better that a complete merger.

HDFC Securities

• SBI picking up 49 percent stake is a more desirable outcome than a merger.
• Success is contingent on deposit outflows, additional equity infusion and actual stress.
• Its failure may result in SBI absorbing Yes Bank.
• A diminution in depositors’ confidence across the system may adversely and disproportionately impact smaller banks.
• The moratorium may impact systemic asset quality but the government’s swift action should limit the fallout.

BoBCaps

• Stake purchase the lesser evil for State Bank of India
• SBI’s initial contribution is Rs 2,450 crore is 1.1 percent of net worth.
• Yes Bank will need further capital infusion.
• Assuming a requirement of Rs 20,000 crore, SBI’s contribution could range from Rs 5,200 crore (26 percent) to a maximum of Rs 9,800 crore (49 percent).
• SBI’s near-term share performance will track the news around Yes Bank, including its financial performance, pedigree of other investors, if any, in the reconstruction plan, and the exact infusion required.
• Retain ‘buy’ on SBI with a target of Rs 400; Yes Bank’s rating under review.