SBI plays godfather to Yes Bank as it gets ready to infuse more capital

Success has many fathers, but failure can get you a godfather. At least in the case of Yes Bank, this seems to be the case. After being roped in to rescue the troubled private sector lender from the throes of collapse earlier this year, State Bank of India (SBI) has played the role of godfather rather proudly.

It first infused ₹6,050 crore into Yes Bank as part of the rescue package, for a 48.2% stake. But that’s not all. The chief currently steering Yes Bank is Prashant Kumar, former deputy managing director of SBI. And importantly, Yes Bank’s wholesale loan portfolio sales have found a ready buyer in SBI, as a Mint story dated 7 July reported.

And now, SBI is all set to invest another ₹1,760 crore in the private sector lender’s follow-on public issue scheduled this month. Yes Bank has said it is targeting to raise ₹15,000 crore through the follow-on public offering (FPO).

If it is successful, SBI’s stake will be diluted considerably. But not many are banking on that outcome, unless another government firm, such as Life Insurance Corp. of India, steps up 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 involves SBI to hold at least a 26% stake 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 a minimum of three years.

Needless to say, SBI had been a magnet for the funds then, and it would be even now.

Yes Bank needs money urgently with the speed at which its wholesale book is decaying. Kumar has had his hands full in cleaning up the balance sheet since he took over in March.

More than 17% of the private lender’s book had turned bad as of end-March. Moreover, the pandemic has increased the severity of delinquencies for Yes Bank and is also making it tough to grow the loan book. In FY20, the bank’s deposits dropped by a massive 54%, while its loan book shrunk 29%.

The bank’s common equity tier-I ratio was 6.3% after the rescue capital infusion. Analysts estimated that the bank will need ₹15,000-20,000 crore in capital to meet the minimum regulatory requirements, besides for its provisioning needs.

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

While it keeps giving money to Yes Bank, SBI will also have to maintain its stake at 49%.

From talent to money, SBI has been the go-to place for Yes Bank to survive. And, for all practical purposes, the private lender is already leading the life of an SBI subsidiary. The state-run bank should perhaps just increase its stake by 2%, and make Yes Bank a legitimate offspring.