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Mumbai (Reuters): India’s cabinet has approved a rescue plan for Yes Bank, the finance minister said on Friday, in a bid to prevent a broader banking crisis.
The state-owned State Bank of India (SBI), the country’s largest lender, would take a 49% stake in Yes Bank, Finance Minister Nirmala Sitharaman said, while private lenders also committed to invest in the bank.
The Reserve Bank of India (RBI), or central bank, took control of Yes Bank last week, imposing limits on withdrawals to prevent a run on deposits before working out a rescue for the bank once considered a rising star after it was set up in 2004.
The authorities have opened investigations into Yes Bank’s lending practices that led to its failure and the bank’s founder and former managing director, Rana Kapoor, was detained and a case of money laundering registered against him.
Kapoor has said he is ready to cooperate with investigators. His lawyer has said he was being made a scapegoat.
India’s largest private banks and others joined the rescue.
“Other private banks rushing in to rescue Yes Bank sets a good precedent,” Asutosh Mishra, head of research of institutional equity at Ashika Stock Broking.
ICICI Bank and one of the country’s largest housing shadow lenders HDFC Ltd said they would invest up to 10 billion Indian rupees ($135 million) each and would each take over 5% stake.
Axis Bank said it intended to invest up to 6 billion rupees and Kotak Mahindra Bank committed to invest 5 billion rupees.
The minister said the moratorium on the bank, which included the limits of deposit withdrawals, would be lifted three days after a government notification was issued. She did not say when the notification would be released.
“The decision to provide a reconstruction scheme keeps at its core the protection of depositors’ interest, keeps at its core providing stability to Yes Bank and also keeps at its core keeping a stable financial environment and banking system,” Sitharaman told reporters in New Delhi.
Private investors involved in the rescue needed to maintain at least 75% of their investments for a minimum of three years, she said.
SBI, which had said it would invest 72.50 billion rupees ($977 million), will not be allowed to reduce its stake to below 26% for at least three years, Sitharaman added.
The central bank increased Yes Bank’s authorised share capital last week, paving the way for a cash injection.
The authorised share capital of Yes Bank had now been hiked to 62 billion rupees from 11 billion rupees, Sitharaman said.
The Central Bureau of Investigations (CBI) said on Friday it had registered a case against wife of the bank’s founder and Gautam Thapar, promoter of Avantha Group companies.
CBI conducted raids in office premises of Avantha to investigate allegations of exchanging “illegal gratification” with Kapoor and his family for favourable lending terms.
A lawyer for Kapoor and his wife could not immediately be reached for comment. Reuters could not reach Thapar and calls to the Avantha Group office after normal working hours were not answered. Emails sent to the parties requesting comment did not receive an immediate response.
