Yes Bank has needed the government to bail it out. (Photo by MANJUNATH KIRAN/AFP via Getty Images)
The State Bank of India (SBI) announced on Thursday (12) it would invest 72.50 billion rupees ($977 million) in embattled Yes Bank as part of a restructuring plan backed by the central bank.
“Our shareholding in Yes Bank Ltd. will remain within 49 percent of the paid up capital,” SBI said in a statement without offering further details.
Yes Bank has been on the brink of collapse since last week, when the Reserve Bank of India (RBI) placed it under moratorium and shares tanked over 70 percent.
The central bank imposed withdrawal limits of 50,000 Indian rupees ($672.52) last Thursday, resulting in hundreds of irate customers lining up outside ATMs in Mumbai and New Delhi in panic.
Finance minister Nirmala Sitharaman and RBI governor Shaktikanta Das assured investors and customers their deposits were safe.
Later Friday, the central bank announced a restructuring plan backed by SBI which would invest 24.5 billion rupees ($330 million) in Yes Bank for a 49 percent stake.
The RBI said the lender’s weakened position was “largely due to inability of the bank to raise capital to address potential loan losses and resultant downgrades”.
The news added to liquidity concerns about India’s financial system more than a year after the near-collapse of IL&FS, one of the nation’s biggest “shadow banks” — finance houses responsible for significant consumer lending.
A resulting reluctance of banks to lend money has exacerbated the woes of Asia’s third-biggest economy, with growth slowing for seven consecutive quarters before picking up in late 2019.
Yes Bank’s exposure to the shadow banking sector is particularly large and it has been struggling for some time to raise fresh capital to free itself of a mountain of bad loans in order to quell worries about its viability.
Yes Bank’s founder Rana Kapoor was arrested early Sunday morning after 20-hours of questioning by India’s financial intelligence agency in Mumbai.
Shares of both Yes Bank and SBI were down 13 percent in Mumbai.