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Yes Bank: RBI releases draft of bailout plan
Within 24 hours of imposing a month-long moratorium on YES Bank which restricts its account holders from withdrawing amounts more than ₹50,000, the Reserve Bank of India (RBI) has put out a draft reconstruction scheme for the beleaguered private bank, which has been long starving for capital.
Further, the central bank has invited suggestions and comments from members of the public, including the banks' shareholders, depositors, and creditors on the draft scheme up to Monday, March 9. The RBI also said that the scheme has also been sent to YES Bank and State Bank of India (SBI) for their comments.
In its draft scheme, the central bank reiterated that the rapidly deteriorating financial position of YES Bank relating to liquidity, capital, and other critical parameters, and the absence of any credible plan for capital infusion necessitated the RBI to take immediate action in public interest and particularly in the interest of the depositors.
The central bank also highlighted that in terms of section 45 of the Banking Regulation Act, 1949, during the period of moratorium the Reserve Bank of India may if so considered necessary in public interest or in the interest of the depositors or to secure the management of the banking company, frame a scheme of reconstruction or amalgamation of the banking company concerned. “State Bank of India has expressed its willingness to make an investment in YES Bank and participate in its reconstruction scheme,” RBI added.
Within the ambit of the proposed scheme, from the appointed date, in ‘clause V’ of the Memorandum of Association (MOA) of the reconstructed bank, the authorised share capital shall stand altered to ₹5,000 crore and the number of equity shares will stand altered to 2,400 crore of face value of ₹2 each aggregating to ₹4,800 crore.
According to YES Bank’s latest annual report for FY19, out of the bank’s authorised capital of ₹600 crore, through 300 crore shares of ₹2 each, the issued capital stood at a little over ₹463 crore via 231.5 crore issued shares.
The scheme provides that the Investor bank shall agree to invest in the equity of the reconstructed bank to the extent that post-infusion, it holds 49% shareholding in the reconstructed bank at a price not less than ₹10 per share (face value of ₹2 and premium of ₹8 per share). “The investor bank shall not reduce its holding below 26% before completion of three years from the date of infusion of capital,’ the RBI’s scheme proposes.
The Articles of Association (AOA) of the reconstructed bank shall invoke deletions of articles pertaining to rights of Indian partners to recommend three directors, right of Indian partners to recommend the name of chairman and CEO, need of recommendations of promoters to appoint whole-time directors, and the whole-time director to be among the board members.
Also, from the appointed date, the office of the Administrator of YES Bank appointed by the central bank “shall stand vacated, and a new board shall stand constituted comprising of a CEO and managing director, non-executive chairman, and three non-executive directors, and two more directors”. “The investor bank shall have two nominee directors appointed on the board of the reconstructed bank,” the RBI scheme said.
While the central bank may appoint additional directors, the scheme says that it will be open to YES Bank’s board of directors to co-opt more directors to it, such that the total board membership, excluding the additional directors appointed by the RBI, will not exceed the maximum prescribed by the bank’s AOA.
“The members of the board so appointed shall continue in office for a period of one year, or until an alternate board is constituted by YES Bank through the normal procedure laid down in its MOA and AOA, whichever is later,” the RBI added.
As regards the rights and liabilities of the reconstructed bank, unless expressly provided in the scheme, all contracts, deeds, bonds, agreements, powers of attorney, grants of legal representation and other instruments of whatever nature, subsisting or having effect immediately before the appointed date, shall be effective to the extent and in the same manner, as was applicable before the scheme.
“It shall not be necessary to obtain the consent of any third party or other person who is a party to any of the aforesaid instruments or arrangements to give effect to them,” the scheme says. “All the deposits with and liabilities of the reconstructed bank, except as provided in the scheme, and the rights, liabilities, and obligations of its creditors, will continue in the same manner and with the same terms and conditions, completely unaffected by the scheme.”
However, the instruments qualifying as additional tier 1 (AT1) capital, issued by YES Bank under the Basel III framework, shall stand written down permanently, in full, with effect from the appointed date. “This is in conformity with the extant regulations issued by Reserve Bank of India based on the Basel framework,” the scheme highlighted.
And, on continuation of services of the employees, the scheme proposes that all the employees of the reconstructed bank shall continue in its service with the same remuneration and on the same terms and conditions of service, including terms of determination of service and retirement, as were applicable to such employees immediately before the appointed date, at least for a period of one year.
However, the board of directors of the reconstructed bank will have the freedom to discontinue the services of the key managerial personnel (KMPs) at any point in time after following due procedure.
The scheme also provides that there will be no change in the offices or branch network of the reconstructed bank. And, it will be open to the reconstructed bank to open new offices and branches or close down existing offices or branches, in accordance with the extant policy of the central bank and complying with the necessary terms and conditions.
While the RBI’s proposed scheme provides depositors safety, the one-year job assurance for employees would provide a cushion to 21,136 employees on the bank’s payroll at the end of FY19, and accounted for 39.4% of its operating expenses for FY19.
Further, depositors should also take respite from a statement from YES Bank, where Prashant Kumar, YES Bank’s administrator appointed by the Reserve Bank of India, said that the moratorium has been brought into effect keeping the depositors’ interest in mind and towards restoring their confidence.
“A solution is being worked upon to revive the bank well before the moratorium period of thirty days ends,” Kumar said in the statement. added that the bank is also taking necessary steps to ensure seamless transactions for the customers. “We assure the depositors that their money is safe and there is absolutely no reason to panic,” Kumar assured.
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