Fund infusion makes Yes Bank SBI’s new associate bank

Three years after merging its five associate banks with itself, State Bank of India now has a new associate bank—Yes Bank Ltd—with the infusion of ₹6,050 crore for a 48.21% stake in the private lender.

In April 2017, India’s largest lender by assets had absorbed its associate banks, State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Travancore, State Bank of Patiala and State Bank of Hyderabad.

In a statement to stock exchanges on Monday, SBI said the infusion of funds is a collective effort of the government, Reserve Bank of India (RBI), banks and other investors with an objective to retain financial system stability. The transfer of funds to Yes Bank, SBI said, was done on 14 March.

SBI chairman Rajnish Kumar said the investment of ₹6,050 crore to rescue Yes Bank is not guided by the principles of return on investment but to maintain financial stability.

“What everybody has to understand is that the decision of SBI and all other banks coming together is not guided by the return on capital principles. It is all guided by providing stability to the financial system,” said Kumar on the sidelines of an event to mark the listing of SBI Cards and Payment Services Ltd.

The fund infusion by SBI was the largest for Yes Bank. ICICI Bank Ltd and mortgage lender HDFC will invest ₹1,000 crore each. Axis Bank will invest ₹600 crore, while Kotak Mahindra Bank will put in ₹500 crore. Bandhan Bank and Federal Bank will invest ₹300 crore each, while IDFC First Bank will put in ₹250 crore.

The rescue of Yes Bank saw both the government and RBI bringing together public and private sector lenders to bail out a stressed private bank. Typically, such mergers are forced between a weak bank and a strong one.

Yes Bank witnessed a 34% erosion of its deposit base to ₹1.37 trillion between 30 September and 5 March. The decline by nearly ₹72,000 crore was largely due to its savings and term deposits. Savings deposits decreased 25% sequentially to ₹29,764 crore in the December quarter. Term deposits fell 22% quarter-on-quarter (q-o-q) to ₹1.12 trillion and current account deposits fell 6% q-o-q to ₹23,440 crore in the same period. According to the bank, its deposits have declined from ₹2.09 trillion as on 30 September to ₹1.65 trillion as on 31 December and have eroded further since then.

The bank has been under an RBI-imposed moratorium since 5 March after the central bank superseded its board and appointed former SBI chief financial officer Prashant Kumar as its administrator.

These curbs on Yes Bank will be lifted at 6pm on 18 March, the government said, notifying the SBI-backed rescue plan. The reconstruction scheme is effective from 13 March. Under this scheme, Yes Bank’s additional tier 1 bonds worth ₹8,415 crore will be written down to zero.