Such a move would end up making Yes Bank, placed under RBI control on Thursday, one of the subsidiaries of SBI, the country’s largest lender.

The move came as the newly appointed administrator of Yes Bank Prashant Kumar told depositors that their money is safe “and there is absolutely no reason to panic”. In tandem, finance minister Nirmala Sithamaram said the central government is “completely committed” to safeguarding depositors’ interest.

The draft policy architecture announced on Friday also requires other investors, in addition to SBI, to inject fresh capital.

Separately, RBI also decided to extend a loan of 10,000 crore as the lender of last resort (LOLR) to the bank against government securities, according to two people aware of the matter who spoke on condition of anonymity.

The 90-day loan will be offered at the current bank rate of 5.4%, plus 3% to meet the immediate liquidity needs of the bank.

Under the LOLR, RBI gives loans against eligible securities to financial institutions in emergencies.

The draft ‘reconstruction scheme’ said Yes Bank’s authorized capital will increase to 5,000 crore (from 600 crore currently) and the paid-up capital will be enhanced to 4,800 crore, comprising 24 billion shares of 2 face value. This will be effective from the day the government notifies the scheme in the Official Gazette. Currently, there are 2.55 billion fully paid-up shares issued, totalling 510 crore.

Under the scheme, SBI is likely to purchase a 49% stake in the bank’s expanded capital, or 11.76 billion shares. The reconstruction mandates that the acquisition price will be not less than 10 per share. Assuming SBI buys the shares at 10 apiece, it will have to shell out a minimum 11,760 crore for acquiring a 49% stake in the expanded capital. In addition, other private investors will have to be roped in for issuing the balance of 9.69 billion shares.

(Graphic: Santosh Sharma/Mint)
(Graphic: Santosh Sharma/Mint)

However, the final price to be paid by SBI and other new investors is yet to be decided. It is also not known if the pricing will be subject to Securities and Exchange Board of India (Sebi) regulations or whether the reconstruction scheme will have superior status over it and other capital market regulations.

Existing shareholders own 2.55 million shares, and they will end up with a roughly 11% stake in the company. The balance 40% stake will presumably be held by other institutions and investors, who will need to infuse around 9,600 crore, assuming the acquisition price is 10 per share.

The scheme also overrides certain clauses of the articles of association which grants rights to promoter-shareholders to appoint directors and chief executives.

News reports on Thursday said five large private banks will participate in the recapitalization of Yes Bank. This could not be independently verified by Mint.

The scheme recommends reconstitution of Yes Bank’s board with a new chief executive officer and managing director.

While SBI will have two nominee directors on the board, RBI may appoint additional directors in exercise of powers conferred under Section 36 AB of the Banking Regulation Act 1949. The board members will be in office for a year until an alternative board is constituted by the bank under the memorandum and Article of Association.

According to the plan, all the employees of the reconstructed bank will continue with the same remuneration for at least a year.

The offices and branches will also continue to function as before and the bank will be allowed to open new offices and branches or close down existing ones.

Under the scheme, the bank’s instruments qualifying as Additional Tier 1 (AT1) capital under the Basel III framework will stand written down permanently.

The bank has AT1 bonds worth 8,800 crore.

Sitharaman told reporters, “I want the RBI to ensure that the due process of law is set to roll, with sense of urgency, so that we find out who led to the problem of this size and magnitude in the Yes Bank.” She said she has asked RBI to “clearly identify the role played by various individuals in creating the problem”.

Administrator Kumar said, “A solution is being worked upon to revive the bank well before the moratorium period of 30 days ends. The bank is also taking necessary steps to ensure seamless transactions for the customers.”

(Graphic: Naveen Kumar Saini/Mint)
(Graphic: Naveen Kumar Saini/Mint)

In a late evening press release on Thursday, RBI said that it has superseded the board of the private sector lender because of a serious deterioration in its financial position.

The bank was also placed under the moratorium by the central government under section 45 of the Banking Regulation Act, 1949.

The central bank’s move is aimed at preventing a run on the bank, an event that can cause a contagion in the entire banking system.

Under the moratorium, Yes Bank is barred from activities such as granting or renewing loans, making investments, incurring liabilities, and transferring or disposing of any properties or assets.

However, the bank is allowed to meet expenditures towards employee salaries, taxes, rent and legal expenses.

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