India Leans on Biggest Lender to Rescue Embattled Yes Bank

(Bloomberg) -- State Bank of India will buy 49% of Yes Bank Ltd. to rescue the embattled lender, a culmination of the country’s biggest such intervention in at least 13 years.

The country’s largest lender will acquire the shares at a minimum of 10 rupees apiece, the Reserve Bank of India said in a statement Friday. The firm’s Additional Tier 1 capital will be written off completely after the central bank seized the financial firm late on Thursday, and restricted its operations.

Speculation of a government rescue had been swirling for months, and the latest announcement helps answer some questions, including the fate of depositors, creditors and shareholders, that had unnerved markets. A Walmart Inc.-backed Indian payments service that relies on Yes Bank to process transactions for more than 175 million users went down late Thursday, underscoring the far-reaching consequences of halting major portions of the bank’s working.

India’s Chaotic Bank Seizure Sends Shockwaves Through Markets

“A completely new board will be put in place,” Finance Minister Nirmala Sitharaman said at a briefing in New Delhi on Friday. “Deposits and liabilities will continue unaffected as before.”

As operations resumed on Friday after the central bank’s late evening seizure, four police vans guarded Yes Bank’s headquarters in Mumbai. Lines to withdraw money at one of its branches in the city were larger than usual around midday, with security officers telling customers they would have to wait one and a half hours to get cash after ATMs ran out of bills.

The announcement with the details came following the close of trading hours on Friday, after Yes Bank shares fell 56% in Mumbai. State Bank declined 6%, while the benchmark S&P BSE Sensex dropped 2.3%.

According to the rescue plan, the government has imposed a 50,000 rupee ($678) cap on individual withdrawal and a 30-day moratorium on new loans and payments. State Bank will not reduce its holding below 26% until three years from the date of capital infusion and all employees will be retained, the central bank said in a statement.

The flight from Indian assets persisted even after Reserve Bank of India Governor Shaktikanta Das said the nation’s banking system was “sound” and a proposed resolution plan for Yes Bank would be released quickly.

The RBI, smarting from the failure of a small lender last year, took the decision to seize Yes Bank after noticing a surge in withdrawals by depositors, people with knowledge of the matter said. Policy makers were concerned that the outflows would accelerate once the bank releases its earnings on March 14, which could show a jump in bad loans, the people said, asking not to be identified as the matter was private. The decision came as a surprise to most Yes Bank executives.

More financial turbulence is the last thing India’s economy needs. While it expanded at the fastest pace among large countries worldwide about a year ago, it has since been battered by a shadow-banking crisis, waning consumer demand and the global coronavirus outbreak. Growth may slow to 5% in the fiscal year ended March, an 11-year low, according to government projections.

--With assistance from Vrishti Beniwal and Jeanette Rodrigues.

To contact the reporters on this story: Siddhartha Singh in New Delhi at ssingh283@bloomberg.net;Suvashree Ghosh in Mumbai at sghosh186@bloomberg.net

To contact the editors responsible for this story: Arijit Ghosh at aghosh@bloomberg.net, Abhay Singh, Unni Krishnan

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