On March 13, a day before YES Bank had proposed to announce its unaudited results for nine months and the quarter ended December 2019, the government notified a reconstruction scheme to revive the beleaguered lender. With the notification, the moratorium on withdrawals would end after three working days. In this case, the moratorium is scheduled to end at 6 p.m. on Wednesday, March 18.
On February 12, YES Bank had intimated exchanges that it would announce its results on or before March 14—beyond the deadline of 45 days as mandated by the Securities and Exchange Board of India (Sebi) for listed companies. But on March 5, through an official gazette notification, the government had put YES Bank under a month-long moratorium wherein depositors could withdraw only up to ₹50,000.
Within 24 hours of the imposition of the moratorium, the Reserve Bank of India (RBI) had put out a draft revival scheme, open for stakeholder comments till March 9. The draft scheme has now been notified for implementation with modification on the expanded authorised capital of YES Bank.
The draft scheme proposed the authorised share capital of the bank be expanded to ₹5,000 crore, from ₹1,100 crore earlier. This it proposed to do with 24 billion equity shares with a face value of ₹2 each aggregating to ₹4,800 crore, and preference stock of ₹200 crore. The notified final scheme has altered the authorised capital to ₹6,200 crore, raising the number of equity shares to 30 billion (aggregating ₹6,000 crore), while retaining the preference share capital at ₹200 crore.
The board of State Bank of India (SBI) has accorded in-principle approval to buy 7,250 million shares at ₹10 each—₹2 face value and ₹8 share premium—both proposed and notified under the scheme. Besides SBI investing ₹7,250 crore, the other investors include HDFC Group (₹1,000 crore), ICICI Bank (₹1,000 crore), Axis Bank (₹600 crore), Bandhan Bank (₹300 crore), and Federal Bank (₹300 crore), among others.
The gazette notification directs that the reconstructed bank shall allot its equity shares within two working days following the commencement of the scheme. Also, the investor bank (SBI) and investors subscribing to the shares under the scheme shall not be liable to pay capital gains tax under the Income Tax Act, 1961 (43 of 1961), for any deemed profits or gains on account of such subscriptions. At Friday’s close of ₹25.55 a share, investors under the scheme are already entering with a notional gain of 155.5%
In RBI’s proposed scheme, the investor bank (SBI) was not supposed to reduce its holding below 26% before completion of three years from the date of infusion of capital. However, the government notified scheme mandates a lock-in period of three years from the commencement of the scheme to the extent of 75%, not only for shares allotted under the reconstruction scheme but also for the shares held by the existing shareholders on the date of commencement of the scheme.
Only shareholders who hold less than 100 shares of YES Bank are exempt from the lock-in period. While the number of such shareholders is hard to arrive at, according to YES Bank’s FY19 annual report, 7,61,024 shareholders—accounting for 98.97% of the total number of shareholders—held up to 5,000 shares of the bank, which was 8.42% of the capital.
YES Bank’s shareholding pattern data at the end of December 2019 shows over 1.61 million individual shareholders under the non-institutions category, who hold 43.66% of the total shares. This was a big jump from 1.33 million shareholders in this category holding 27.37% of the bank as of September 2019.
Besides the shareholder lock-in, the government’s scheme has also constituted the board of directors of the reconstructed lender as the office of the RBI-appointed administrator shall stand vacated after seven days from the date of cessation of the moratorium.
In the new board, Prashant Kumar, former CFO and deputy managing director of SBI—and also the current administrator of beleaguered lender—shall assume the roles of YES Bank’s chief executive officer and managing director. Sunil Mehta, former non-executive chairman of Punjab National Bank, would be YES Bank’s new non-executive chairman. The board will have two non-executive directors—Mahesh Krishnamurthy and Atul Bheda.
There is room for more directors on the board where SBI shall nominate two officers as directors, and the RBI can appoint one or more persons as additional directors, if necessary. Any investor with 15% voting rights can also nominate one director.
The scheme says that members of the board, other than the additional directors, so appointed shall continue in office for a period of one year or until an alternate board is constituted by the reconstructed bank in accordance with the procedure laid down in its memorandum and articles of association.
Also, the investor bank and the investors through the scheme shall be treated as ‘public shareholders’ of the reconstructed bank for a period of five years from the date of allotment of shares to them under all applicable laws.
YES Bank’s current employees continue to have a 12-month breather as the notified scheme continues to assure employees continuity with the same remuneration and on the same terms and conditions of service, including terms of determination of service and retirement, as were applicable to such employees immediately before the commencement of the scheme.
For the key managerial personnel (KMP) though, if the board of directors of the reconstructed bank provide reasons to be recorded in writing and after following the due procedure, can discontinue the services of the KMP at any time as the board deems necessary.
On Friday, Union finance minister Nirmala Sitharaman said that the moratorium on YES Bank shall be lifted within three working days of the notification of the scheme. Hence, March 19 (Thursday) onwards the beleaguered bank would have to deal with anxious depositors who would want to play safe and queue up at the bank.
However, Monday onwards YES Bank’s share prices would be worth a watch, as shareholders who would fear a lock-in above 75% of their holding might hit the counter hard to unload their stock. It should not be a surprise if the 155.5% gain that new investors are entering with get reduced to a smaller value or even get negated. Because YES Bank’s shareholders will get the opportunity to run four days before the depositors’ possible run on the bank.