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Yes Bank rescue: Cabinet approves reconstruction plan to protect depositors

SBI’s stake in Yes Bank will remain within 49% of the paid-up capital of the bank, the state-run lender told stock exchanges

Highlight:

  • Last week, Reserve Bank of India submitted a draft scheme to revive crippled private sector lender

  • As a part of central bank-mandated rescue plan, SBI approved an investment of 7,250 crore in Yes Bank Ltd

Cabinet today clears draft resolution plan for capital-starved Yes Bank, said Finance Minister Nirmala Sitharaman. The scheme is to primarily safeguard depositors and ensure the stability of the financial systems, Sitharaman said while briefing the media. Last week, the Reserve Bank of India submitted a draft scheme to revive crippled private sector lender.

As a part of central bank-mandated rescue plan, State Bank of India (SBI) approved an investment of ₹7,250 crore in Yes Bank Ltd. The executive committee of the bord of largest lender approved the purchase of 725 crore shares of Yes Bank at a price of ₹10 a share, the state-run lender said.

SBI’s stake in Yes Bank will remain within 49% of the paid-up capital of the bank, the state-run lender told stock exchanges.

Under the central bank’s revival scheme, SBI will have to buy 49% of Yes Bank and cannot reduce its holding below 26% before for the next three years.Other investors also being invited to revive Yes Bank. There will be a lock-in period of three yrs of 75% of their investment, Sitharaman said.

In its draft resolution plan, the banking regulator said that all deposits with Yes Bank will continue in the same manner and with the same terms and conditions. Authorised capital shall stand altered to ₹5,000 crore and number of equity shares will stand altered to ₹2400 crore of ₹2 each. The investor bank shall agree to invest in the equity of reconstructed Yes Bank to the extent that post infusion it holds 49% shareholding in the reconstructed bank at a price not less than ₹10 (face value of ₹2) and premium of ₹8.

The investor bank shall have two nominee directors appointed on the board of the reconstructed Yes Bank, the central bank said in its resolution plan. The banking regulator may appoint additional directors on the board of Yes Bank.

On March 5, the RBI imposed a moratorium on Yes Bank, restricting withdrawals to ₹50,000 per depositor till April 3. The RBI also superseded the board and placed it under an administrator, Prashant Kumar who is a former deputy managing director and CFO of SBI.

After RBI’s action, ED and CBI have arrested Yes Bank’s co-founder and former CEO Rana Kapoor for alleged money laundering and corruption.

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