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Due diligence on YES Bank, have time till Monday to respond to RBI’s draft scheme: SBI

In its draft ‘YES Bank Ltd. Reconstruction Scheme, 2020’ announced on Friday evening, the RBI said that SBI has expressed willingness to invest in the private lender and that it will bring in 49 per cent equity.

SNS | New Delhi |

SBI chairman Rajnish Kumar on Saturday said the bank has time till Monday to respond back to the Reserve Bank of India (RBI) on the draft scheme for the rescue of YES Bank and it may or may not pick up 49 per cent stake.

The SBI chief further said the bank’s legal team has been doing “due diligence” on the draft scheme proposed by RBI.

“Plan has been received by SBI and the legal team is working on the plan. We had informed through the stock exchange that SBI board has given in-principle approval of exploring the possibility of picking up a stake of up to 49 per cent in YES Bank,” Kumar said at a press conference in Mumbai.

“Whether SBI takes a 49 per cent or 26 per cent stake in YES Bank will depend on the investment involved. We are also examining the interest received from some other investors. SBI board will take the final call on this,” he added.

The Reserve Bank on Friday came out with the “draft reconstruction scheme” under which SBI will bring in Rs 2,500 crore for a 49 per cent stake in the private sector bank.

Kumar said SBI will try to implement the resolution plan before the RBI deadline. Buying a 49 per cent stake in YES Bank would involve an investment of Rs 2,400 crore, that is if it decides to go alone. Kumar also said many potential investors, 23 in total, have approached SBI after seeing the investment scheme. The minimum investment for SBI would be Rs 5,500 crore if it picks 26 per cent stake in YES Bank.

“SBI may or may not pick the entire 49 per cent in the bank,” he said.

Kumar hoped that SBI would get many co-investors to implement this scheme. He said a credible name was needed in this reconstruction effort, which is why SBI has come forward. If SBI goes alone for 49 per cent stake, the bank will invest Rs 2,450 crore in YES Bank.

“Many investors have approached SBI over YES Bank and Investment decisions are by choice. There are no compulsions. Our board mandate is that we must maintain 0.5 per cent above regulatory minimum capital adequacy. We will continue to do that and have to give assurance to potential investors and depositors. That’s why we are stepping in. There is a certain process which has to be followed when a bank is being reconstructed. It had to be done. There were not many options before RBI and government, which is why they had to go with this proposal”, he said.

He said SBI has the right to appoint two nominee directors and suggest names for Managing Director and Chief Executive Officer’s role. That will be done.

In its draft ‘YES Bank Ltd. Reconstruction Scheme, 2020′ announced on Friday evening, the RBI said that SBI has expressed willingness to invest in the private lender and that it will bring in 49 per cent equity. It also said that SBI cannot reduce holding to below 26 per cent before three years from the date of capital infusion.

The draft came a day after the RBI imposed a moratorium on YES Bank, restricting withdrawals to Rs 50,000 per depositor till April 3.

“YES Bank is an entity and Rana Kapoor is an individual. If the individual has done something wrong, they will face the consequences. The institution doesn’t have to suffer for that,” Rajnish Kumar asserted it is purely an investment from SBI’s standpoint and SBI shareholders’ interest would be fully protected.

He said SBI would not seek capital from the government for this investment. The scheme proposes full repayment of all deposits, dilution of equity, and write-off of Rs 10,800 crore of additional tier one (AT-1) bonds. But Kumar did not comment on the 81 bonds being written off in the draft scheme. One of the biggest losers in case the RBI’s restructuring scheme for YES Bank goes through will be the additional tier-I bondholders who have bets totalling to Rs 10,800 crore on the lender. The investors in such instruments typically include mutual fund houses and bank treasuries.

The SBI chairman had on Friday said the problem of YES Bank is “lender-specific” and not a structural issue. He also said that there was no need for anyone to panic.

Amid concerns, Union Finance Minister Nirmala Sitharaman on Friday defended RBI’s decision to impose curbs on crisis-hit YES Bank stating that the Central bank has been continuously monitoring and scrutinizing the private sector lender since 2017.

On the present development, Sitharaman said the RBI had noticed that there were governance issues and weak compliance in the bank combined with a wrong asset classification and risky credit decisions.

In a major revelation, the Finance Minister said investigative agencies, as well as SEBI, had noticed malpractices by top executives in March 2019.

“Sebi also started investigation from September 2019 on insider trading related matter,” said the finance minister.

Detailing about the riskier lending the bank undertook, the minister said the YES Bank had lent money to some of the very stressed corporations like Anil Ambani Group, Essel, Dewan Housing Finance Corporation (DHFL), Infrastructure Leasing & Financial Services Limited (IL&FS), and Vodafone.

On Thursday, the Reserve Bank of India superseded the board of troubled private sector lender YES Bank and imposed a 30-day moratorium on it “in the absence of a credible revival plan” amid a “serious deterioration” in its financial health.