SBI CARDS IPO PROCEEDS COULD FUND RESCUE PLAN

Lender mopped up ~2,800 crore from share sale

The windfall that State Bank of India earned from the initial public offering (IPO) of SBI Cards & Payment Systems would prove handy in its proposed investment in YES Bank.

According to the government draft restructuring plan for YES Bank, the country’s largest lender will pick up a 49 per cent stake in the reconstituted YES Bank and infuse ~2,450 crore in lieu of its stake.

The reconstituted YES Bank will have authorised capital of ~5,000 crore divided in 25 billion shares with face value of ~2 each. In comparison, currently, YES Bank has paid-up equity capital of ~510 crore divided into 2.4 billion shares with face value of ~2 each.

State Bank of India netted around ~2,800 crore by selling a part of its stake in SBI Cards in the IPO that closed on March 5, 2020.

Net gains to SBI from the IPO are, however, likely to be lower as it will have to pay long-term capital gains tax gains (LTCG) on the profits that it will book in the share sale. LTCG is currently levied at the rate of 10 per cent on the gains made over ~1 lakh.

“The SBI Cards IPO closed at an opportune time as the proceeds can be easily invested in YES Bank without forcing SBI to alter any of its own growth and investment plans,” said a source, speaking on t he condition of anonymity.

According to i ndustry sources, YES Bank requires fresh capital of around ~25,000 crore to come out of its financial difficulty, based on its balance sheet and reported bad loans at the end of September 2019.

“According to its latest available balance sheet, YES Bank’s total bad loans were estimated to be around ~50,000 crore. The bank had core capital or shareholder ’s equity of around ~25,000 crore at the end of the H1FY20 (first half of financial year 2019-20) and needed a similar amount of fresh equity to cover the rest of losses on account of bad debt,” a banking analyst said.

He added, however, that the quantum of bad loans could rise further or even reduce, as the bank is yet to declare its finances for the third quarter of FY20. YES Bank had earlier announced plans to declare its Q3FY20 results by March 14, 2020.

Some analysts also said SBI Cards would allow SBI to fund its future capital infusion in YES Bank.

“SBI Cards is expected to list with a market capitalisation of around ~70,000 crore, which is likely to rise further, given its earnings record.

Given this, SBI can further dilute its stake in the company to make additional capital infusion in YES Bank when needed,” according to an industry source.

After the initial public offering , SBI’S stake in its cards venture will decline to 70 per cent, valued at around ~49,000 crore based on the offer price.

Otherwise, YES Bank’s assets base is around 10 per cent that of SBI.

YES Bank had total assets of around ~3.5 trillion as on September 30, 2019, against SBI’S ~37.5 trillion.

Of this, SBI’S core capital or net worth was close to ~2.32 trillion at the end of the first half of the financial year, compared to YES Bank’s ~27,970 crore.