Top mortgage lender Housing Development Finance Corp. Ltd (HDFC) and automobile financier Kotak Mahindra Prime Ltd will invest ₹2,000 crore each in crisis-hit Yes Bank Ltd, according to a rescue plan prepared by State Bank of India, with the state-run lender bringing ₹2,450 crore on its own. As per the plan, Yes Bank needs to raise capital of ₹20,000 crore in the next six months, which will be infused in stages.
A draft recapitalization plan outlining the initial investment was submitted to the Reserve Bank of India (RBI) and the Union finance ministry on Wednesday, three people familiar with the plan said, which will provide enough equity capital into cash-starved Yes Bank and help it stay afloat.
“According to the plan, while a total of around ₹6,500 crore will be invested by the three financial entities in the first tranche, an amount of ₹2,500-3,000 crore from the existing capital of Yes Bank will be used to build an equity capital base of ₹10,000 crore,” said the first of the two people, both of whom spoke on condition of anonymity. As per the plan, the three investors may buy Yes Bank shares at ₹10 each in the first tranche, this person added.
RBI imposed a moratorium on Yes Bank late evening on 5 March, following it up with a draft reconstruction scheme the next day, asking depositors and creditors to share their views by 9 March.
At the heart of Yes Bank’s troubles is its capital inadequacy and the inability to raise enough funds to boost its Common Equity Tier 1 (CET1) capital
At the heart of Yes Bank’s troubles is its capital inadequacy and the inability to raise enough funds to boost its Common Equity Tier 1 (CET1) capital (Sarvesh Kumar Sharma/Mint)
At the heart of Yes Bank’s troubles is its capital inadequacy and the inability to raise enough funds to boost its Common Equity Tier 1 (CET1) capital. Yes Bank’s CET 1 is at ₹27,600 crore, according to an estimate by JPMorgan in a 5 March report. As on 30 September, its capital adequacy ratio was 16.3%, Tier I ratio 11.5% and CET 1 ratio at 8.7% (against the required 7.375%).
“HDFC Ltd, along with 4-5 other banks and NBFCs (non-banking financial companies) have proposed to invest in equity of Yes Bank in the form of a consortium to be led by SBI,” the second person said. “The proposal has not got board approval from HDFC and this proposal has been forwarded to the RBI. Only after the RBI approval, HDFC will seek board approval. HDFC has proposed to invest ₹1,000-2,000 crore as a part of the revival plan,” the person added.
Once the ₹10,000 crore is raised, outside investors such as private equity funds will be asked to participate for the balance ₹10,000 crore.
“A lot of private equity entities and family offices have been approached for the Yes Bank restructuring plan. The prospective private equity investors will have to buy shares of Yes Bank at the current market price along with a basic premium since those investors will not come with any commitment, while SBI, HDFC and Kotak Mahindra Prime may invest and take stake along with a prior commitment to stay in the bank’s board for at least three months until the crisis is averted,” said the first person.
Kotak Mahindra Prime, which primarily finances passenger vehicle purchases, is a subsidiary of Kotak Mahindra Bank. The company is dedicated to financing and supporting automotive manufacturers, dealers and retail customers. A Kotak Mahindra Bank spokesperson declined to comment, while an email sent to HDFC remained unanswered.
The JPMorgan report stated, “Taking a conservative view of the stressed pool at Yes Bank ( ₹45,000-50,000 crore), we believe the net worth ( ₹27,000 crore) can buffer most of the losses realized from the stress book at the bank. However, capital will still be required to recapitalize it, which in our view could be $2.5-3 billion if AT1 is not converted.”
JPMorgan estimates the total known stressed exposure of Yes Bank at ₹41,000 crore.
The stressed pool is made up of largely four key accounts —Essel Group, Anil Ambani-promoted Reliance Group and now Vodafone Idea Ltd, besides a large commercial real estate book, according to the report.
On Wednesday morning, Axis Trustee, representing the investors holding additional tier 1 (AT1) bonds issued by Yes Bank, approached RBI to propose a settlement plan.
