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SBI Almost Had To Rescue Yes Bank On Its Own. And Then...

The Yes Bank rescue, as recounted by former SBI chairman Rajnish Kumar.

<div class="paragraphs"><p>Rajnish Kumar, former chairman of State Bank of India (Photographer: Jason Alden/Bloomberg)</p></div>
Rajnish Kumar, former chairman of State Bank of India (Photographer: Jason Alden/Bloomberg)

Late evening on March 5, 2020, on Altamount Road in Mumbai, two men sat in the back of a car discussing a decision that would become the largest rescue in Indian banking history.

Rajnish Kumar, then chairman of State Bank of India, sat with Prashant Kumar, then chief financial officer of the bank. The matter was of such immediacy that the two couldn't even wait to get to their office less than 30 minutes away. In the back seat of the car, Kumar accepted his CFO's resignation.

Just a couple of hours before that drive, the Reserve Bank of India had placed the private sector lender Yes Bank Ltd. under a moratorium. Kumar was to be appointed the administrator the following morning, as the board of the bank had been superseded.

During that car ride, the formalities were completed—Kumar stepped down as SBI's CFO and prepared to head Yes Bank.

In his new book "The Custodian Of Trust" published by Penguin Random House India, the former SBI chairman details an eventful tenure, over the course of which he oversaw the rescue of Yes Bank and the contentious resolution at Jet Airways Ltd. Kumar also dwells on his personal journey which culminated in him leading India's largest bank for three years.

The Yes Bank saga began with co-founder Rana Kapoor's ouster due to governance concerns. Deutsche Bank's India chief Ravneet Gill was brought in as MD & CEO in March 2019. Gill started a fundraising process, which eventually failed. By March 2020, the regulator had stepped in to stem the damage to the bank and its depositors.

The RBI's moratorium on Yes Bank was originally supposed to last till April 3. During this period, Yes Bank depositors could not withdraw more than Rs 50,000 from their bank accounts.

The RBI had set an internal deadline of March 13—a week from when the regulator superseded the board, within which a rescue plan had to be put together, Kumar writes in his book.

For a short period of time, it was debated whether SBI should itself buy 49% stake in Yes Bank with an investment of Rs 2,450 crore. Other investors could then be gradually brought in.

Kumar writes that it would have been impossible to save Yes Bank with such little capital. It would have been disastrous for all concerned. Kumar admits that he feared that the misadventure would have eventually landed at SBI's doors and it would be his head on the guillotine.

I told them (RBI Deputy Governors NS Vishwanathan and MK Jain) candidly that the moratorium had changed the entire scenario, resulting in a real risk of a run on Yes Bank. Thus, SBI would not be able to manage alone, and it was important to ensure that a few more investors joined in the deal.
Rajnish Kumar, Former Chairman, SBI (Book Excerpt — The Custodian Of Trust)

The Rush To Find Investors

On March 5, when the RBI's announcement hit, Kumar was at Mukesh Ambani's residence at Altamount Road, where Blackstone Managing Director Stephen A Schwarzman was visiting.

Kumar briefly discussed the possibility of the private equity firm joining hands with SBI to invest in Yes Bank.

Immediately after the moratorium was declared, Kumar swung into action, organising his time to ensure multiple meetings would be conducted. "My first parallel action was to send a message to my team at SBI to reach out to Amit Dixit, who was heading Indian operations of Blackstone as well as other private equity investors," Kumar writes.

The following day, he reached out to Sonjoy Chatterjee, the head of Goldman Sachs in India, as the U.S.-based investment bank was interested in investing in Yes Bank. Later that day, he met with Dixit and Housing Development Finance Corp.'s Deepak Parekh for what Kumar describes as "one of the most serious discussions I would have in my capacity as head of SBI".

Blackstone was prepared to take up to 20% stake in the ailing bank, with HDFC chipping in a Rs 1,000 crore, for which they wanted a board seat each. Other investors including Brookfield, Carlyle, KKR and Tilden Park were also in discussions with SBI. Domestic investors including Rakesh Jhunjhunwala, Premji Invest and Radhakishan Damani's DMart their hat in the ring too.

"The efforts were proceeding in the right direction and I became very optimistic that the target of Rs 22,000 crore was achievable with SBI contributing around Rs 7,000 crore, for a stake of 30 percent in Yes Bank," Kumar says.

The problem? The RBI's strict deadline of March 13 to finish the process for the capital infusion, which Kumar describes as "virtually impossible". The earliest that Blackstone could bring the funds in was March 19, which was not acceptable to the RBI. Most potential international investors by now had called off their due diligence, except Tilden Park which still wanted to invest $500 million (Rs 3,750 crore) in Yes Bank.

Light At The End Of The Tunnel

Eventually, a two-stage plan was nearing finality, where SBI and a few other domestic lenders would invest equity capital in Yes Bank and other investors would be tapped in the second phase.

Kumar reached out to Kotak Mahindra Bank Ltd.'s Uday Kotak and explained that no other public sector bank would be able to provide additional capital to Yes Bank. Thus the mantle of the rescue operation fell on the private sector lenders.

Kotak and Parekh spoke with ICICI Bank Ltd.'s Sandeep Bakhshi and Axis Bank Ltd.'s Amitabh Chaudhry. who agreed to invest Rs 1,000 crore and Rs 600 crore, respectively.

Life Insurance Corporation, which was in discussions with Rs 250 crore, eventually pulled out of the process.

...one limitation in this offer was that between SBI and LIC, we were not willing to go beyond a total investment of 49.9 per cent. Another difficulty was to achieve the transfer of funds on 14 March, which was a Saturday.
Rajnish Kumar, Former Chairman, SBI (Book Excerpt — The Custodian Of Trust)

In the meantime, Federal Bank Ltd.'s Shyam Srinivasan pitched in with Rs 250 crore. V Vaidyanathan, MD & CEO of IDFC First Bank Ltd., a late entrant in the process, came in with a Rs 150 crore investment proposal.

"Despite all these commitments, however, I was falling short of the target of Rs 10,000 crore," Kumar says. To bridge the gap, he called upon a reluctant Chandra Shekhar Ghosh of Bandhan Bank Ltd., who committed Rs 250 crore.

Finally, the rescue plan was in place and received the government's approval, helping the RBI notify it by its own deadline of March 13. The fund infusion helped Yes Bank stabilise operations and the moratorium was lifted by March 18. Retail investors did not panic after the moratorium was lifted, even though state governments withdrew their bulk deposits.

The liquidity support of Rs 50,000 crore from the RBI prevented the collapse of Yes Bank.
Rajnish Kumar, Former Chairman, SBI (Book Excerpt — The Custodian Of Trust)

By July 2020, Yes Bank managed to raise Rs 15,000 crore from external investors in its largest ever follow-on public offer.

The rest, as Kumar writes, is history.