The Reserve Bank of India (RBI) has granted substantial voting rights of 26 per cent to the country's largest bank State Bank of India (SBI) for the public sector bank's Rs 6,050 crore investment in the private sector lender YES Bank. The idea of higher voting rights is probably to protect the interest of the bank which has taken the biggest exposure with 48.21 per cent stake in the weak bank.
SBI is however classified as an 'investor' and not promoter of the bank. But the listed private bank, now known as professionally managed bank after the exit of founder Rana Kapoor, already appears as an 'associate' of the SBI in its balance sheet.
As per the initial agreement, the SBI is required to hold at least 26 per cent stake in the bank for a period of three years. But the bank has to continue with a higher stake for a longer period so as to protect its interest and generate reasonable returns on its investments.
The higher voting rights in the private bank may come as a dampener for attracting new investors into the bank. The investors may feel that the SBI would call the shots in deciding the future strategy. Former SBI MD Prashant Kumar is already heading the bank as its new MD & CEO, while two more directors are on the board nominated by the SBI.
The concerns of potential new investors appear justified as one had seen in the case of UTI AMC where a reputed global investor T Rowe Price acquired a substantial 26 per cent stake in 2010. But despite higher shareholding, the other group of Indian investors led by SBI, LIC, Bank of Baroda and PNB had a major say in the strategy. Each of the four shareholders having 18 per cent in the UTI AMC wielded more power than T Rowe Price.
In a banking business, a new investor does not get more than 5-10 per cent voting rights because of RBI 's restrictions. The other private sector shareholders are also expected to exit the bank once the lock-in period of three years ends. This would make the field wide open for the SBI with 26 per cent voting rights to run the bank.
Promoter voting rights capped at 15% in private banks
Currently, SBI classified as an 'investor ' is actually the defecto promoter of the bank in terms of higher voting rights, management control and directors on the board of the private bank.
The shareholding in the private banks is tightly regulated by the RBI as promoters are advised to reduce their holding to 15 per cent within 15 years. YES Bank has already completed 15-year period. Ideally, the shareholding of the SBI should be capped at 15 per cent.
The entire Kotak Bank controversy was about reducing the promoter stake. The bank was expected to bring down the promoters' stake to 15 per cent by March 2020. Under the new agreement, the promoter Kotak was asked to bring down the stake to 26 per cent by August this year which the bank has already complied with. The voting rights of Kotak family are already restricted to 15 per cent in the bank.
Voting rights of other YES Bank investors capped at 15%
Along with the SBI, seven other institutional investors classified as 'public shareholders' have been roped in by the government and the RBI to rescue the bank. These investors -- HDFC Ltd, ICICI Bank, Axis Bank, Kotak Bank , Federal Bank , Bandhan Bank and IDFC First Bank -- have a combined equity stake of 30.15 per cent. The voting rights of these investors are capped at 9 per cent individually or together. However, the RBI has the power to grant voting rights up to 15 per cent. It is not known whether the RBI has allowed a higher 15 per cent voting rights to these public investors.
YES Bank is currently in the market to raise Rs 15,000 crore for meeting the capital requirement. The bank needs capital to support growth, expansion, meeting regulatory ratios like capital adequacy and provisioning for bad loans. In the last capital infusion that happened in March this year, the SBI and other banks had pumped in Rs 10,000 crore to rescue the bank from failing.