Four years since Yes Bank rescue, RBI greenlights an exit plan for its saviours

A likely stake sale may value India's sixth-largest private bank by assets at around $10 billion, two people with direct knowledge of the development said, in what would be the largest acquisition in India's banking sector.

The central bank gave its in-principle approval to Yes Bank and some of its key shareholders a few weeks ago, the people cited above said on condition of anonymity. Approving a majority stake sale is a rare decision for the regulator, which has capped 26% as promoter holding in domestic banks.

Also read | Wanted: A new owner for Yes Bank

“Some of the bidders are interested only if they are allowed to acquire 51% in the bank. While assessing the fit and proper criteria for the potential new promoter (of Yes Bank), as a special case, RBI has agreed for a 51% sale of control to an appropriate incoming promoter," one of the two people cited above said.

According to the second person, RBI officials agreed to the sale plan during discussions, but has yet to issue a written approval. The central bank is still assessing the fit-and-proper status of the bidders.

The regulator approved the stake sale after considering the Yes Bank case to be a unique one given its shareholding structure, loan book and liquidity requirements, the people said.

Yes Bank has appointed Citigroup to shortlist suitable promoters. A Citigroup spokesperson declined to comment on the story.

Path to exits

The RBI approval opens up an exit path for State Bank of India (SBI) and other lenders that jointly own 33.74% in Yes Bank, which has assets worth over ₹4 trillion. SBI holds 23.99% in Yes Bank, HDFC Bank 2.75%, ICICI Bank 2.39%, Kotak Mahindra Bank 1.21%, and Axis Bank 1.01%. LIC owns 3.98%, while CA Basque Investments holds 8.74% and Verventa Holdings Ltd 9.21% in Yes Bank. 

The banks’ total holding in Yes Bank has dropped from 35.18% in April and 36.74% in March. Some of these banks have been advised by RBI not to sell their shares in the open market, the second person added.

Also read | Yes Bank’s turnaround: Why Prashant Kumar still has miles to go

In 2018, RBI had allowed Prem Watsa-owned Fairfax Group to pick up 51% in the then loss-making Catholic Syrian Bank, the first time a foreign investor was allowed to acquire an Indian bank since the time ownership norms were tweaked in May 2017.

“The large shareholders in Yes Bank are mostly those who operate and promote their own banks separately. So, they would be more concerned about the liquidity and growth of their own banks rather than Yes Bank," said the first person.

He said bringing in a new promoter will ensure better liquidity for Yes Bank and enhance its ability to access enough growth capital for faster expansion.

"If you want banks to be strongly capitalized, then there has to be a strong investor. Then only we can ensure that capital will be available. If it is a widely distributed holding, then when there is a need for capital, who will put it? Only strategic investors will come forward. A widely distributed investor will not come in," a former RBI official said on condition of anonymity.

Under special circumstances

India allows a promoter to hold up to 26% in a private bank, but RBI may allow a higher shareholding under special circumstances such as relinquishment by existing promoters, supervisory intervention, reconstruction/restructuring of banks, entrenchment of existing promoters or any other action in the interest of the bank. The deal may involve a share swap in case of a merger with a domestic bank.

"All you have is a network and a good IT system in Yes Bank. The bank is not there in a single product. The investor will have to put in ₹45,000 crore and then have to put in growth capital. Who has got the appetite to put in $7-8 billion in India?," a top private sector banker said on condition of anonymity.

The first person said some of the potential foreign suitors of Yes Bank want a special exemption on promoter holding since some of its loans are still viewed with scepticism in terms of the profile of the borrowers, especially in the corporate banking portfolio. This portion, however, has a lower share than retail and small business borrowers.

Yes Bank’s total loans stood at ₹2.28 trillion at the end of FY24. Of this, the share of retail and SME advances was 61.6%, while mid-corporates accounted for 15% and corporate advances stood at 23%.

Also read | Yes Bank, IDFC First Bank seek to revive corporate lending

The first person said RBI is considering the exemption to encourage potential buyers to put in enough capital to help it grow faster.

According to the two persons, financial entities including Japan’s Sumitomo Mitsui, MUFG group, Mizuho Bank and West Asia’s First Abu Dhabi Bank are circling Yes Bank.

Emails sent to Yes Bank, SBI, RBI remained unanswered. Mitsui Sumitomo, MUFG, Mizuho and First Abu Dhabi Bank also did not respond to queries till press time.

Yes Bank shares closed 3.53% down at ₹25.69 on BSE on Monday, clocking a market capitalization of ₹80,502 crore, a day when most of the banking stocks fell.

Fortunes may change

If a new owner takes reins of Yes Bank, the lender may emerge as an aggressive private bank with better pricing of banking products and services for the borrowers.

In March 2020, the regulator seized control of Yes Bank from its board led by founder-chairman Rana Kapoor, after its gross bad loans ballooned to 16.8% and its liquidity coverage ratio (LCR)—essentially the bank’s ability to meet immediate short-term repayments—fell to as low as 37% of the total cash outflow over the next 30 days. 

RBI then brought in SBI, LIC and other banks to join as Yes Bank’s shareholders and help it stay afloat.

SBI initially owned around 49% in Yes Bank, but after a ₹24,000 crore fund-raising, its stake fell to 26.13% in 2022. The bank was required to maintain a stake of at least 26% in Yes Bank for three year, which ended in March 2023.

On 14 March, Mint was the first to report that Yes Bank was looking for a new promoter to sell up to 51% stake, and had hired Citigroup’s India unit to find a buyer.

Yes Bank’s deposit base has swelled from ₹1 trillion in March 2020, when RBI superseded its board to over ₹2.66 trillion now. Profits and net interest margin have improved since the ownership change. In FY24, the bank posted a 74.4% year-on-year jump in net profit at ₹1,251 crore. The bank’s NIM was at 2.4%, better than in previous quarters.