SBI plays Yes Bank godfather as it prepares to inject more capital

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Success has many fathers, but failure can get you a sponsor. At least in the case of Yes Bank, that seems to be the case. After being mobilized to save the ailing private sector lender from the throes of collapse earlier this year, the State Bank of India (SBI) has taken on the role of godfather rather proudly.

He first infused ??6,050 crore in Yes Bank as part of the bailout, for a 48.2% stake. But that’s not all. The current head of Yes Bank is Prashant Kumar, former deputy managing director of SBI. Most importantly, the wholesale sales of Yes Bank’s loan portfolio found a ready-made buyer in SBI, as a July 7 Mint article reported.

And now SBI is ready to invest another ??1,760 crore in the private sector lender’s follow-up public issue scheduled for this month. Yes, the bank said it aims to increase ??15,000 crore thanks to the public follow-up offering (FPO).

If successful, SBI’s stake will be significantly diluted. But few people bank on this result, unless another government company, such as Life Insurance Corp. of India, does not rise to the challenge.

For now, SBI can be expected to play the key role in the private lender’s ongoing survival plans. The rehabilitation of Yes Bank implies that SBI holds at least 26% of the capital for three years. Besides SBI, six other banks and two financial institutions had also infused money. All investors are required to hold Yes Bank shares for at least three years.

Needless to say, SBI was a fundraiser back then, and still would be now.

Yes, the bank is in dire need of cash with the rate at which its wholesale book is deteriorating. Kumar has had his hands full cleaning up the balance sheet since taking office in March.

More than 17% of the private lender’s book had gone bad by the end of March. In addition, the pandemic has increased the severity of delinquencies for Yes Bank and also makes it difficult for the loan portfolio to grow. In FY20, the bank’s deposits fell 54%, while its loan portfolio fell 29%.

The bank’s Tier I capital ratio was 6.3% after the bailout capital injection. Analysts believe the bank will need ??15,000 to 20,000 crore of capital to meet minimum regulatory requirements, in addition to its procurement needs.

It is clear that SBI will have to keep pumping money until Yes Bank is able to reduce the stress level on its book.

If it continues to give money to Yes Bank, SBI will also have to maintain its 49% stake.

From talent to money, SBI has been the place of choice for the survival of Yes Bank. And, for all intents and purposes, the private lender is already leading the life of an SBI subsidiary. Maybe the state bank should just increase its stake by 2% and make Yes Bank legitimate offspring.

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