SBI says YES Bank survival crucial, can invest up to Rs 10,000 cr in it

SBI chief asserts private lender's failure could have huge implications for economy, says many co-investors have evinced interest afte reading RBI draft

State Bank of India (SBI) is ready to invest up to Rs 10,000 crore for a 49 per cent stake in YES Bank as part of a bailout and revival plan. The bank would initially invest Rs 2,450 crore, but was ready to invest the additional amount if required, SBI Chairman Rajnish Kumar told reporters here on Saturday.

“I have already set the (investment) boundary of Rs 10,000 crore,” Kumar said, adding this was based on the assumption of higher capital requirement by the bank. Assuming the private lender issues 20 billion shares at Rs 10 apiece (with face value of Rs 2 each), the total capital raise will be Rs 20,000 crore. And for the 49 per cent stake, SBI will need to put in about Rs 10,000 crore, Kumar said, while elaborating his plans for the Reserve Bank of India (RBI)-initiated reconstruction scheme.

The bank was already in touch with other investors to pump funds into the struggling lender. “23 potential investors have approached us to invest and they include some very good names,” he said. According to him, those planning to invest more than 5 per cent in the bank will come under the ‘fit and proper’ criteria formulated by the RBI. Depending upon the interest from other investors, SBI’s final investment amount would be determined, he said.

The legal and investment teams of SBI, Kumar said, were in the process of conducting due diligence on the draft restructuring plan for the private bank and would approach the RBI on Monday with responses. With SBI being a national institute of importance, it needed to step in and protect YES Bank from collapse, he said.

Responding to questions whether SBI was being pressured by the government to carry out a rescue of YES Bank, Kumar said the private bank needed to survive. “The failure of YES Bank would have consequences for the Indian economy,” he added.

The SBI chairman said the bank had sufficient capital as its capital adequacy ratio (CAR) was 50 basis points in excess of the RBI’s norms. The CAR of the bank stood at 13.73 per cent, with the tier I component being 11.59 per cent at the end of December 2019. Kumar added that the government won’t be required to step in with funds to save YES Bank. 

“The interest of SBI shareholders will not be compromised,” he said.

He also ruled out merging YES Bank with SBI. Kumar said YES Bank would be treated as any subsidiary or associate bank in the SBI stable. SBI would maintain an arm’s length distance with YES Bank and would let its independent board run the bank, he said.

The SBI chairman, however, assured depositors of YES Bank that their money was safe and that once the moratorium was lifted, they would be able to access their funds freely. On a lighter vein, Kumar said he told the same to his nephew also who had an account with YES Bank. “Yesterday, when all this news was there, I received the first call from my nephew. He has an account with YES Bank. I have asked him not to worry”.