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LIC may be roped in rescue scheme for Yes Bank

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Mumbai, March 7, 2020-

State-owned insurer Life Insurance Corporation may consider joining RBI efforts to rescue Yes Bank.

This can help to increase capital infusion under the draft scheme to rescue Yes Bank designed by the Reserve Bank of India.

Official sources said that RBI, SBI and finance ministry officials were in touch with the insurer to see its interest to participate in the scheme. LIC spokesperson, however, could not be reached for comments.

The current rescue of Yes Bank involves State Bank of India (SBI) buying 49 per cent stake in Yes Bank for Rs 2,450 crore. But SBI chairman Rajnish Kumar on Saturday said whether it takes a 49% or 26% stake in Yes Bank will depend on the investment involved.

Sources said that in wave of the issues involving burden falling on a single investor to rescue Yes Bank, other investors including LIC is being considered to join with additional equity participation. LIC already holds 8.06 per cent in Yes Bank.

For LIC, recovery of Yes bank is important it itself has large exposure in bank’s debt instruments that has now been downgraded by all rating agencies. At the end of the December quarter (Q3), LIC had an exposure of Rs 8,051 crore to the debt instruments of Yes Bank.

Rajnish Kumar has also said that the bank was also examining the interest received from some other investors. However, whether other investors would subscribe to additional equity in beleaguered bank or take some burden off SBI from its proposed equity contribution to the extent of 49 per cent, is still to be worked out.

An earlier plan for Yes Bank explored SBI and LIC jointly picking up 49 per cent stake. A SBI-led consortium involving private banks such as ICICI Bank, HDFC Bank, Indusind Bank, Kotak Mahindra Bank and Axis Bank was also considered for Yes Bank’s rescue.

Kumara¿s assertion on Saturday that the bank was also examining the interest received from some other investors may be hinting to some of these banks who may be interested to put in equity but at a lot lower levels.

Yes Banks net worth of Rs 25,000 crore at present, is below investment grade. It has tried but failed to raise equity capital in the past many months as find houses have not been forthcoming.

The proposed acquisition of stake by SBI and others will provide much needed lifeline to Yes Bank.

In its draft ‘Yes Bank Ltd. Reconstruction Scheme, 2020’, RBI said the strategic investor bank will have to pick up 49 per cent stake and it cannot reduce holding to below 26 per cent before three years from the date of capital infusion. The draft came a day after the RBI imposed a moratorium on Yes Bank, restricting withdrawals to Rs 50,000 per depositor till April 3.

The scheme proposes full repayment of all deposits, dilution of equity, and write-off of Rs 10,800 crore of additional tier one (AT-1) bonds. But Kumar did not comment on the 81 bonds being written off in the draft scheme. One of the biggest losers in case the RBI’s restructuring scheme for Yes Bank goes through will be the additional c holders who have bets totalling to Rs 10,800 crore on the lender. The investors in such instruments (tier-I bond typically include mutual fund houses and bank treasuries.  (Agency)

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