India proposes rescue package for Yes Bank

Existing private equity investors include WestBridge Capital and Government Pension Fund of Norway, which hold a combined 2.92% of the publicly listed entity. Previously, Malaysian sovereign wealth fund Khazanah Nasional was also an investor but it achieved an exit in 2012.

Founded in 2004, Yes Bank is India’s fourth largest private sector bank after HDFC, ICICI Bank and Kotak Mahindra Bank. In recent years, the bank, which primarily issues corporate loans, has seen its gross non-performing assets (NPA) rise substantially. In the quarter ending September 2019, gross NPAs stood at 7.39%, while loans totaling INR171.3 billion ($2.3 billion) had to be written off in the first six months of the current financial year. 

The bank has struggled to raise capital to cover its activities, with credit rating agencies issuing downgrades and retail customers withdrawing deposits. On March 5, the Reserve Bank of India, the country’s central bank, announced it would impose a 30-day moratorium restricting cash withdrawals. The following day, the regulator suspended the bank’s management and announced a scheme of reconstruction. 

The plan proposes a valuation of INR5 trillion for the bank and requests SBI to acquire up to 49% of the reconstructed business at a share price of INR10. Yes Bank shares closed at INR16.20 on March 6 and were trading at INR22.20 as of mid-afternoon March 9.

SBI must acquire at least 26% of the reconstructed entity and hold onto the stake for three years. Speaking to the media at a press conference addressing the issue, SBI chairman Rajnish Kumar indicated the state-owned lender has spoken to several investors with a view to forming a consortium to acquire control of the ailing bank.

It is unclear how shares held by existing investors will convert to the reconstructed entity. Most investors are expected to see their stakes diluted as a result of the rescue package, according to SBI’s Kumar. Indian media reports indicate that SBI has approached several foreign and domestic institutional investors to form the consortium and finalize the deal by the end of the week.

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• Topics
• South Asia
• Financials
• India
• WestBridge Capital Partners