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Rs 50,000 cap on Yes Bank withdrawals to go 'much much much' before Apr 3: SBI chairman

Rajeev Dubey     March 8, 2020

Yes Bank will need between Rs 20,000 - 22,000 crore to revive. SBI's risks will be ring-fenced with maximum exposure of Rs 10,000 crore. But most importantly, the Rs 50,000 cap on withdrawals for Yes Bank customers will be lifted well before the April 3 deadline-perhaps, as quickly as next week. Those are some of the assurances SBI chairman chairman Rajnish Kumar had for the worried Yes Bank and SBI depositors and shareholders in an exclusive interview to India Today TV. "The moratorium will be lifted much, much, much before 3rd April," Kumar said.

Kumar's assurance will come as a huge relief for Yes Bank accountholders who have been worried that the withdrawal cap may prolong for as long as PMC Bank whose depositors still cannot withdraw more than Rs 1 lakh.

Aware of the possible risks to SBI of an acquisition where the quality of debt still remains a question mark, Kumar was cautious in calling it a strategic investment instead of an acquisition. Yes Bank will continue as a separate board-run entity and will not be merged with SBI. It will be an SBI associate bank instead. "It is a strategic investment decision by State Bank of India where as per the draft scheme which has been circulated and put in public domain by Reserve Bank of India the boundaries for this investment have been set. What it does say is that State Bank of India will invest minimum 26% that will be locked in for 3 years," says Kumar.

Kumar also assured SBI shareholders and depositors that risks for India's largest bank will be limited to its Rs 10,000 crore commitment, at best. In fact, he said, given the investor interest SBI may not be required to even put in that quantum of investment.

How bad is Yes Bank's loan book? With 7.39 pc of declared NPAs in the Rs 2.3 lakh crore loan book and another Rs 70,000 to Rs 80,000 crore being watched closely in default or negative grade ratings, could there be more skeletons in the Yes Bank cupboard? "Yes Bank will be declaring their (Q3 results held up since December) results on 14th of March. When these Investors, including SBI, will make this investment, they will make this investment by keeping their eyes and ears open," says Kumar.

However, there's bitter sweet news for Yes Bank shareholders. Investors who have seen the value of the bank's marketcap plunge from Rs 90,835 crore on 20 August, 2018 to barely Rs 4,132 crore at close of trading on Friday March, 6 will see their holding halve from over 90 pc when SBI and its consortium of investors brings in 49 pc of fresh equity. It will erode the share price from a peak of around Rs 1,400 per share to close to Rs 10 per share SBI and other investors will be paying. However, with India's largest bank now backing their bank, they can look forward to better days ahead as Yes Bank's performance improves.

Here's the full transcript of the interview:

Rajeev Dubey: I have with me the one man who has possibly all the answers to the problems engulfing Yes Bank, private sector bank Yes Bank, which is in deep deep trouble. SBI chairman Rajnish Kumar who is going to take over the bank in the next few days. Welcome Mr Kumar to the show. What is the status of this acquisition? Where are you on this deal and how quickly can you take charge of Yes Bank?

SBI Chairman Rajnish Kumar: So let me clarify that this is not an acquisition. This is not the right word to use. It is a strategic investment decision by State Bank of India where as per the draft scheme which has been circulated and put in public domain by Reserve Bank of India the boundaries for this investment have been set. What it does say is that State Bank of India will invest minimum 26% that will be locked in for 3 years.

But, we can go up to 49% so it cannot be anyway considered an acquisition by State Bank of India. State Bank of India is not taking over Yes bank, but what it is doing is that as an anchor investor and being a credible anchor investor, which gives confidence to the other investors as well as the depositors and the general public, that an Institution of the stature of State Bank of India is standing behind Yes Bank in their efforts to mobilise capital. It is public knowledge that in last one year there was an effort going on by the management of Yes Bank to mobilise capital but for some reasons it could not succeed. Many investors are approaching State Bank of India that if you're stepping in,in whatever capacity then it will give us confidence and we are willing to put in money.

So let there be a complete clarity that it is not it take over at all, it is not a merger it is not even a subsidiary. But if we are holding 26% minimum then it is a some sort of an associate for the State Bank of India and State Bank of India will provide support by way of one, by nominating an MD and CEO and we will have two board seats as suggested the draft scheme.

The bank will be managed and run as independent private sector bank as it was by a Board which is competent, professional of very high quality and there would not be any day to day interference from State Bank of India but we will stand behind it having taken the decision to invest anywhere between 26- 49 %.

Rajeev Dubey: So this is how you are ring-fencing the State Bank of India. Who are the other investors? How soon? When does this happen, when does the funding happen and basically what the customers want to know is when do things get to normal?

SBI Chairman: RBI Governor categorically stated that we have been given a timeline of 3rd April but definitely it will be the effort of Reserve Bank of India and government of India that the moratorium on the bank is lifted very soon. There is a certain process to be adopted and within the minimum possible time this process will be completed. Yesterday, I commented that State Bank's legal team, the investment team supported by merchant bankers like SBI capital market are working 24/7.

We worked yesterday, we worked today, we are still working and as soon as complete clarity is there about the mobilisation of necessary share application money as well as the process around the receiving of comments by Reserve Bank of India by tomorrow and then the process which Reserve Bank and the government has to follow about the notification of scheme. So as soon as those processes are over it would be possible to lift the moratorium.

Rajeev Dubey: Have you decided the co-investors in the consortium because you said there is a lot of interest and 26 pc is yours what about the remaining 23 pc?

SBI Chairman: Many investors have reached out to us and many investors we have reached out to and we will have clarity within next 24 hours. We will be able to give all those names and outline to Reserve Bank of India.

Because any investment in a bank is governed and guided by Reserve Bank of India guidelines of 'fit and proper'. There are certain regulatory issues, so once we have the investors who are willing to co-invest with State Bank of India, with firm commitments, once we are very comfortable, confident and have commitments we will approach Reserve Bank of India and tell them that this is the list of potential investors. Then apart from SBI where there is a complete certainty that we can invest an amount between 26 to 49 pc. the rest will be decided by Reserve Bank of India. But a few things again for the benefit, that anyone who wants to invest above 5 pc requires specific 'fit and proper criteria' approval from Reserve Bank of India. Up to 5 pc investment in any case there is no issue.

Rajeev Dubey: Is LIC participating?

SBI Chairman: LIC is an existing investor. As of now we have not approached LIC. LIC's existing investment is there. It's not necessary that LIC has to necessarily participate. If they want to, there's no restriction within the 10 pc limit.

Rajeev Dubey: From the customer's point of view, does he expect a funding coming in and things starting to get normal sometime next week.

SBI Chairman: I won't comment on that because there is a certain process to be followed. I will leave it to Reserve Bank of India but the intention I can tell you is to do it as quickly as possible and everybody is working in that direction.

Rajeev Dubey: Mr Kumar, can you give us an idea of how was this news broken to you. When did you first get to hear that you may need to take over and when did you how was this news broken to you?

SBI Chairman: I think these questions are not as relevant. This we can talk later on, because what is more relevant at this point of time is about lot of misinformation is being is spread.

Rajeev Dubey: The concern is obviously about the NPAs. How bad is the NPA situation in Yes Bank and even the other debt that the bank has. Do you have visibility on how bad is this loan book?

SBI Chairman: That all potential investor have. Quite a bit of information is in public domain. Yes bank will be declaring their results on 14th of March. Let us wait for those results also but when these investors, including State Bank of India, will make this investment they will make this investment keeping their eyes and ears open. But to assess the health of the bank my only request is that there are several ratios which are used. First and the foremost is what is called the capital adequacy ratio, as per the Basel norms. Then there are gross NPA percentage, net NPA percentage. So whenever a Bank declares result whatever is considered to be the material information for determining the health of the bank by law, we are required to disclose and it is form the part of the balance sheet so my only limited request to you and all channels is please don't invent new ratios, let us go by the disclosure made in the balance sheet.

Rajeev Dubey: Is there visibility you could give to the customers and to the investors. When do the customers start to withdraw freely. Because PMC Bank limit has not been removed till date. It is still capped at Rs 1 lakh. Yes Bank customer is worried withdrawal cap will prolong beyond the 3 April deadline as well. Because if this 50k becomes 75k-80k, I guess that's how it's going to move but how soon does this restriction get removed?

SBI Chairman: There is no question that there will be any extension beyond 3rd April. What I am saying is that State Bank of India, Reserve Bank of India, we all are working that the situation gets normalised very quickly. No, I can't tell you specific date but definitely through your channels and to the customers of Yes Bank, I can say with confidence that the Moratorium will be lifted much much much earlier than 3rd April.

Rajeev Dubey: Can you assure the depositors at least at, that beyond 4th April, they could expect to withdraw as much as they like, whatever is there in account?

SBI Chairman: Again I am saying 3rd April, let us not talk about 3rd April. It will happen much earlier than that.

Rajeev Dubey: You are assuring that depositors will be able to withdraw whatever funds they have well before the deadline.

SBI Chairman: Yes, that I can assure with 100%.

Rajeev Dubey: Ok that's very good news, but what would be your first step when investment happens. What will be your first steps after the acquisition? The problems that RBI identified are asset deterioration, governance issues, false assurance of capital raising, deposit withdrawals. These are all the problems plaguing the bank. What are the ones that you will take head-on as soon as you get charge of the bank?

SBI Chairman: The process is that this is under section 45 of RBI Act where the draft scheme has to be put in public domain. Tomorrow is the last date for State Bank of India, Yes bank and anyone else who wants to give comments on this scheme. That first step is over by tomorrow.

By tomorrow also there will be complete clarity that apart from State Bank of India, who all others are willing to co-invest in a very quick manner. This is important that the investor, whoever is doing it we are ready. Because our in principle approval from the board is there and for the final approval also we will be going to our board and we will get it done very quickly. Once that is done we will inform the stock exchanges and that news will also be in public domain about the exact amount and the number of equity shares which state bank of India will be acquiring.

We tell Reserve Bank of India that yes we are ready to invest my funds already our co-investors are these and then we give it to RBI and then RBI goes to the government for notification of the final scheme and as soon as final scheme is over money share application money is in account shares are allotted and the Moratorium gets slipped.

Rajeev Dubey: Chidambaram said that SBI was forced to acquire. How much of this is a business case and how much is a forced case?

SBI Chairman: I would like to keep away from any political comments. But if you want to ask me that what would be the impact of this decision on SBI that question I am willing to answer.

Rajeev Dubey: Yes, please go ahead.

SBI Chairman: So, as far is SBI is concerned, we have assessed when any investment decision is taken by State Bank of India. What are the key considerations for any investment, ie; we are investing this money, how safe is this investment over a period of time, because it is not a short term investment. Over 3 to 5 year period what would be our IR. That is one.

Second is, because for a bank, to invest any amount above 10%, all that amount is deducted from the capital of State Bank of India and to that extent it impacts our capital adequacy ratio. So this amount whatever is being proposed and even at the outer limit, what we have set, we will be well within the capital adequacy ratio for State Bank of India. So one; we see the potential that whatever we are investing we will be able to get a decent return and what gives us that confidence is that the core investors. There is a huge interest. When there is a huge interested it means investors are seeing value in Yes Bank.

Our maximum exposure at 49%, if the said capital to be invested is Rs 22,000 crore or Rs 24,000 crore, say Rs 20,000 crore and above, so far exposure does not go beyond Rs 10,000 crore. What I believe that given the kind of investor responses there, we maybe not even required to invest Rs 10,000 crore.

Rajeev Dubey: The investors, analysts are worried about the hidden skeleton in the cupboard. We know for instance that DHFL crisis now, ED is investigating Rs 37,000 crore of that amount, we know that the NPS are about the seven and half percentage per Q2; there's another Rs 30,000 crore of debt under a watch, together all debt put together in default grade or in negative grade is almost Rs 80,000-90,000 crore. How much of this due you think have the visibility in terms of recovery.

SBI Chairman: So, I think we should wait for the results of Yes Bank for 14 March and there are information available to the investors like us. So I would not like to make any disclosure as far as Yes bank's balance sheet is concerned and I would like to wait that of 14th March let them declare the result, then there will be 31st March results are there. So we would go by the disclosures made in the balance sheet as well as whatever our internal due diligence is there. But this is something which I as a potential investor can not disclose and let us wait for 14th March.

Rajeev Dubey: What is your message to the investor of Yes Bank. The shareholder of Yes Bank, the public shareholder. One to the shareholder of Yes Bank because he is worried that his equity holding is going to half. Essentially 49% the government is taking over, in which case there should be some right offs and some other shares will reduce. What will be your message to the Yes Bank share holder and whatever is your message to the public shareholder of SBI. How much should he worry?

SBI Chairman: So, I can definitely give a message to the minority shareholders and public shareholders of SBI that this decision will not have any negative impact on SBI as per our assessment. As far as Yes Bank investors are concerned, again it is not appropriate for me to give any assurance or message. But there are 245 crore shares of Yes Bank, definitely where new capital is to be infused there will be a dilution.

So, if the capital infusion is in the range of 20 or 22 thousand crore and then at what price in what manner so ultimately dilution of the existing shareholders it cannot be avoided because the Yes Bank needs fresh capital and when fresh capital is infused, obviously for existing shareholders there is a dilution. That is a maths which again once the number of shares issued, at what price, all that is decided, then the extent of dilution will be known.

But in general, not talking about Yes bank and not about creating any panic about any bank or anybody, but in general, particularly for retail investors, the exchanges or regulators or the general message always is that for stressed asset, unless you have a very high-risk capacity then it is different, but if you are an ordinary small investor then the message which I have learnt is that you should always go for quality and stable is stock and the people who are speculators or the people who are in the business of stock investing, the regular operators, for them it is a different matter. They understand their risk-reward metrics very well.

Rajeev Dubey: That's good. Big takeaway that I am taking from this interview is that you are saying that this is going to be resolved much much faster than the 3rd April deadline and you're also saying that depositor should be able to withdraw, whatever I want, whatever is there in account, well before the deadline, definitely not be on this deadline.

Number two, that SBI's investment is ring-fenced; you are investing maximum about Rs 10,000 crore out the Rs 22,000 crore that will be put into Yes Bank.

The third is for the shareholders of Yes Bank that their equitable half, their proportionate shareholding in the bank will half. Am I getting this right?

SBI Chairman: No, it could be even more.

Rajeev Dubey: Ok, last question to you is are you happy, are you very happy, or are you very very happy.

SBI Chairman: So, that is not the question. It is not about whether Rajnish Kumar is happy or State Bank is happy. The question is about that yes it is a little bit of a difficult situation for the financial sector in the country. This is started with crisis in IL&FS and then subsequently housing finance company and then Yes Bank. But when you are in a difficult situation it does not help that the debate is ill-informed; any effort by anyone to miss spread and mislead that should not be there; the analysis has to be well research. Different point of view, they are very much welcome. I have also been listening about this safety of public or private, so one we have to see that historically in the history of the banking in this country, no bank has been allowed to fail and depositors money has been protected irrespective of the fact that earlier the guarantee by DICGC was only up to Rs 1 lakh and now it is up to 5 lakh. But other than that also there is an implied comfort that depositors' money will be protected.

So, 1 - we should believe in that; 2 - about the ownership issue, whenever people compare private-public, now there will be some 'Pride' public sector banks be taken the pride, we are very safe and we have reached, we have distribution, private sector bank always say that we have a very good customer service. So, in a country like India, which is a very big country of 1.3 billion people, we will have to have a system where everybody co-exists so there will be private sector banks, public sector bank, small finance banks, cooperative banks, payment banks, and we need all of them to be safe and sound. So, any attempt to discredit any type of institution by virtue of the fact of their constitution, it is not done and it is not advisable. Individual entity, whether it is public sector, private sector, payment bank, Co-operative bank, who are not governing and managing well, they have to be singled out, that is different.

But to point fingers at any category of the banks and generalize that is not advisable and my request to you is, also that because your channel is a very respected channel, that this sense of responsibility it needs to be displayed.

Rajeev Dubey: I think your assurance to the depositors and to the investors is not that great news for investors, but definitely for depositors will, I think, really soothe a lot of nerve. Thank you for talking to India Today TV.


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