The government notified a rescue plan for Yes Bank, led by State Bank of India (SBI) and joined by other lenders, as it looked to shield the banking sector from a widespread crisis.
The so-called reconstruction scheme, cleared by the Union Cabinet, took effect on March 13. The Reserve Bank of India’s (RBI) moratorium, imposing limits on withdrawals to prevent a run on deposits will be lifted in three working days, according to the notification.
“Moratorium on the bank to be lifted on the third working day at 18.00 hours (6 pm) from date of commencement of the scheme,” it stated.
It has appointed Prashant Kumar as the CEO and MD of the reconstructed Yes Bank. Kumar is the former CFO and Deputy MD of State Bank of India (SBI) and was appointed Administrator to the troubled lender by the Reserve Bank of India (RBI).
He will vacate office as Administrator within seven calendar days from cessation of the moratorium.
Former Non-Executive Chairman of Punjab National Bank Sunil Mehta is appointed as Non- Executive Chairman. Mahesh Krishnamurthy and Atul Bheda are Non-Executive Directors. The new board is also to be formed within seven days from cessation of the moratorium.
Further, the notification states “the investor bank (SBI) shall nominate two more officers as Directors to the new board and the RBI may appoint one or more additional directors as necessary.”
The new board may co-opt more directors to it as permitted under Articles of Associated. Members of the board, except additional directors, are to continue in office for one year or until an alternate board is constituted by the reconstructed bank.
Existing shareholders holding over 100 shares in Yes Bank are subject to a three-year ‘lock-in’ for 75 percent of their investment.
The authorised share capital is to be altered to Rs 6,200 crore and the number of equity shares is to be altered to Rs 3,000 crore of Rs 2 each. The authorised preference share capital will continue to be Rs 200 crore. Investors are to be allotted shares on the reconstructed bank at Rs 10/share: per the notification.
For primary investor SBI, the post-infusion equity capital is “not be less than 26 percent and not more than 49 percent of total equity.” It is also to “not reduce its equity stake below 26 percent before completion of three years.”
The notification states that an investor, other than the investor bank (SBI), “may exercise voting rights to the extent of its shareholding, or 9 percent of the total voting rights of all the shareholders of the reconstructed bank, or as may be decided by the RBI-whichever is lower.”
Investors deemed ‘fit and proper’ to hold voting rights in excess of 9 percent by the RBI may be permitted to “exercise voting rights to the extent of its shareholding or up to 15 percent of the total voting rights of all equity shareholders of the reconstructed bank-whichever is less.”
Non-SBI investors also have a three-year ‘lock-in’ for 75 percent of their investment.
Also Read: ICICI Bank, Axis Bank, HDFC and Kotak Mahindra Bank to invest total Rs 3,100cr in Yes Bank
Investor bank and the investors are to be treated as “public shareholders” of the reconstructed bank for five years. They will “not be liable to pay capital gains tax for any deemed profits or gains on account of the subscription.”
Rights & liabilities of new board
The notification also clarified that “all existing contracts, agreements, etc., will continue as before the reconstruction scheme. The deposits and liabilities, liabilities and obligations of creditors will also continue as before.”
“All employees to continue to be employees of the reconstructed bank on the same terms and conditions for a minimum of a year,” it stated, adding that the board of directors may discontinue services of key managerial personnel “as deemed necessary”.
The lifting of the moratorium is in line with what Finance Minister Nirmala Sitharaman had stated on March 13 in regards to the moratorium on Yes Bank.
The notification has to this effect stated: “The order of moratorium on the reconstructed bank issued by the Government of India in the Ministry of Finance, Department of Financial Services dated March 5, 2020, shall cease to have an effect.”
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