Hindustan Times (Lucknow)

Banking stocks, coronaviru­s pull Sensex down 894 points

SBI set to pick up a 49% stake in the lender, RBI to lend ₹10,000 crore immediatel­y

- Gopika Gopakumar gopika.g@livemint.com

NEWDELHI: Indian stocks fell by at least 2.3% and the rupee weakened to its lowest since 2018 after the central bank seized control of beleaguere­d YES Bank, intensifyi­ng the risk-off mood fuelled by the spread of coronaviru­s cases in India.

The S&P BSE Sensex closed at 37,576.62, shedding 894 points and leaving investors poorer by ₹3.28 lakh crore. At one point, the index had fallen almost 4% before it clawed back some losses.

The rupee fell as much as 1.1% before trimming losses on what traders said was suspected Reserve Bank of India (RBI) interventi­on. It closed at 73.79 (provisiona­l) against the US dollar, losing 46 paise on Friday.

“Investors have turned risk averse and the contagion is likely to hit smaller bank and non-bank finance companies,” news agency Bloomberg quoted Abhimanyu

Sofat of IIFL Securities Ltd, as saying. “How soon the RBI finalises the rescue plan is key as persistent operationa­l curbs increase uncertaint­y.”

The RBI put strict limits on the lender’s operations while a rescue plan is devised.

Under a government-backed proposal, State Bank of India, the nation’s largest lender, will lead a group that will inject new capital into YES Bank.

MUMBAI: The Reserve Bank of India (RBI) on Friday announced a draft rescue plan for Yes Bank, saying State Bank of India (SBI) has expressed its willingnes­s to invest in the troubled lender.

Such a move would end up making Yes Bank, placed under RBI control on Thursday, one of the subsidiari­es of SBI, the country’s largest lender.

The move came as the newly appointed administra­tor of Yes Bank Prashant Kumar told depositors that their money is safe “and there is absolutely no reason to panic”. In tandem, finance minister Nirmala Sithamaram said the central government is “completely committed” to safeguardi­ng depositors’ interest.

The draft policy architectu­re announced on Friday also requires other investors, in addition to SBI, to inject fresh capital.

Separately, RBI also decided to extend a loan of ₹10,000 crore as the lender of last resort (LOLR) to the bank against government securities, according to two people aware of the matter who spoke on condition of anonymity.

The 90-day loan will be offered at the current bank rate of 5.4%, plus 3% to meet the immediate liquidity needs of the bank.

Under the LOLR, RBI gives loans against eligible securities to financial institutio­ns in emergencie­s.

The draft ‘reconstruc­tion scheme’ said Yes Bank’s authorised capital will increase to ₹5,000 crore (from ₹600 crore currently) and the paid-up capital will be enhanced to ₹4,800 crore, comprising 24 billion shares of ₹2 face value. This will be effective from the day the government notifies the scheme in the Official Gazette. Currently, there are 2.55 billion fully paid-up shares issued, totalling ₹510 crore.

Under the scheme, SBI is likely to purchase a 49% stake in the bank’s expanded capital, or 11.76 billion shares. The reconstruc­tion mandates that the acquisitio­n price will be not less than ₹10 per share. Assuming SBI buys the shares at ₹10 apiece, it will have to shell out a minimum ₹11,760 crore for acquiring a 49% stake in the expanded capital. In addition, other private investors will have to be roped in for issuing the balance of 9.69 billion shares.

However, the final price to be paid by SBI and other new investors is yet to be decided. It is also not known if the pricing will be subject to Securities and Exchange Board of India (Sebi) regulation­s or whether the reconstruc­tion scheme will have superior status over it and other capital market regulation­s.

Existing shareholde­rs own 2.55 million shares, and they will end up with a roughly 11% stake in the company. The balance 40% stake will presumably be held by other institutio­ns and investors, who will need to infuse around ₹9,600 crore, assuming the acquisitio­n price is ₹10 per share.

The scheme also overrides certain clauses of the articles of associatio­n which grants rights to promoter-shareholde­rs to appoint directors and chief executives.

News reports on Thursday said five large private banks will participat­e in the recapitali­zation of Yes Bank. This could not be independen­tly verified by Mint.

The scheme recommends reconstitu­tion of Yes Bank’s board with a new chief executive officer and managing director.

While SBI will have two nominee directors on the board, RBI may appoint additional directors in exercise of powers conferred under Section 36 AB of the Banking Regulation Act 1949. The board members will be in office for a year until an alternativ­e board is constitute­d by the bank under the memorandum and Article of Associatio­n.

According to the plan, all the employees of the reconstruc­ted bank will continue with the same remunerati­on for at least a year. The offices and branches will also continue to function as before.

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The move would end up making Yes Bank, placed under RBI control on Thursday, one of the subsidiari­es of SBI.
PRADEEP GAUR/MINT ■ The move would end up making Yes Bank, placed under RBI control on Thursday, one of the subsidiari­es of SBI.

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