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YES Bank: Will RBI allow single investor to hold 30% stake?

The private lender said that the capital infusion via issuance of fresh equity shares would be subject to regulatory approvals.

October 31, 2019 / 07:23 PM IST

After witnessing steep erosion in its market value in the past one year, YES Bank seems to have finally managed to wriggle out of a rut. The private lender on October 31 announced that it has received a binding offer of $1.2 billion from a global investor.


The bank said that the capital infusion via issuance of fresh equity shares would be subject to regulatory approvals, as well as the bank’s board and shareholders.


"Firstly, the bank has done a commendable job in selling the proposition to global investors at a time when foreign lenders are withdrawing  their India operations. However, from a regulatory point of view, the proposed deal does not fit into any norms," said Ashvin Parekh, managing partner, Ashvin Parekh Advisory Services.


According to analysts, the proposed deal of $1.2 billion would fetch around 30 percent of the bank's stake for the global investor, whose name the lender has not revealed.


As per rules laid down by the Reserve Bank of India (RBI), any acquisition of shareholding or voting rights of 5 percent or more would be subject to obtaining prior approval from the regulator.  In case of financial institutions, the shareholding has been capped at 10 percent.

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The investor will also have to pass the RBI's "fit and proper" criteria to own a stake in a bank.


The bank has to maintain at least 26 percent of shareholding in the hands of domestic investors at all times. Foreign shareholding in YES Bank was around 40 percent as on March 2019, its annual report showed.


However, there are exceptions where RBI may allow higher shareholding by a single investor. The regulator may take a different view in the interest of the depositors.


"A large global investor may be required to have a domestic entity by the regulator," said Parekh, adding that the regulator may take a view on case-to-case basis.


Last year, Fairfax India-the investment firm promoted by Canadian billionaire Prem Watsa, infused Rs 440 crore in Catholic Syrian Bank to buy majority stake in the Kerala-based lender. As per media reports, the bank has laid out a roadmap to reduce the stake gradually to the permitted threshold of 15 percent over the course of 15 years.


Stock markets cheered the announcement as Yes Bank’s shares closed 24.03 percent higher at Rs 70.45 on BSE.

"Further developments will depend on who the investor is and the regulatory approvals," said VK Vijaykumar, chief investment strategist, Geojit Financial Services.



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Moneycontrol News
first published: Oct 31, 2019 05:12 pm
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