Protecting Yes Bank Is A Must To Avoid Contagion, Says SBI’s Rajnish Kumar
Rajnish Kumar, chairman of State Bank of India. (Photographer: Dhiraj Singh/Bloomberg)

Protecting Yes Bank Is A Must To Avoid Contagion, Says SBI’s Rajnish Kumar

State Bank of India is stepping in to support Yes Bank Ltd. to protect the economy from a contagion, said Chairman Rajnish Kumar, days after the Reserve Bank of India seized control of the troubled private lender citing deteriorating financial health.

The legal and investment teams of the nation’s largest lender are in the process of conducting due diligence on the draft restructuring plan for the private bank and will approach the RBI on Monday with responses, Kumar said at a press meet on Saturday.

With SBI being a national institute of importance, it needed to step in and protect Yes Bank from collapse, he said.

We are looking at a banking institution and the question is that of their survival, we have to step in. Allowing it to fail will lead to a huge contagion effect.
Rajnish Kumar, Chairman, SBI

The RBI on Thursday advised the central government to put Yes Bank under a moratorium and superseded its board, capping withdrawals at Rs 50,000 for a month. The day after, the central bank released a draft plan aimed at altering Yes Bank’s authorised share capital to Rs 5,000 crore and issuing 2,400 crore shares with a face value of Rs 2 apiece. SBI will acquire a 49 percent stake in the private bank and make an initial investment of Rs 2,450 crore.

To be sure, as an investor under the reconstruction scheme, SBI is expected to maintain at least 26 percent stake for three years. This means as new investors buy into Yes Bank, SBI will have to infuse further equity to maintain its stake.

Kumar, however, said SBI’s total contribution to Yes Bank won’t exceed Rs 10,000 crore. India’s largest lender will make an investment decision keeping in mind the interest of its own minority shareholders, he said.

SBI, according to Kumar, has already received initial interests from multiple domestic and international financial investors. The bank will look at investment proposals in consultation with the RBI, keeping in mind the “fit and proper guidelines” of the regulator, he said.

Also, under the RBI’s draft reconstruction plan, a new board will be appointed at Yes Bank and a new managing director and chief executive officer will be placed to lead the lender. While the employees of the bank have been provided with protection under the plan, the new board will have the right to end the services of any key management personnel when it wishes to.

Kumar said Yes Bank would be treated as any subsidiary or associate bank in the SBI stable. The state-owned lender will maintain an arm’s length distance with Yes Bank and will let its independent board run the bank, he said.

The SBI chairman, however, assured depositors of Yes Bank that their money is safe and that once the moratorium is lifted, they will be able to access their funds freely.

Watch the SBI chairman’s press conference:

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.