Yes Bank's rescue math: SBI Cards share sale can fund the revival

Topics YES Bank | SBI Cards | IPO

The reconstituted YES Bank will have authorised capital of Rs 5,000 crore divided in 25 billion shares with face value of Rs 2 each
The windfall that State Bank of India earned from the initial public offer (IPO) of SBI Cards & Payment Systems would prove handy in its proposed investment in YES Bank.

According to the government draft restructuring plan for YES Bank, the country’s largest lender will pick up a 49 per cent stake in the reconstituted Yes Bank and infuse Rs 2,450 crore in lieu of its stake.

The reconstituted YES Bank will have authorised capital of Rs 5,000 crore divided in 25 billion shares with face value of Rs 2 each. In comparison, currently, YES Bank has paid-up equity capital of Rs 510 crore divided in 2.4 billion shares with face value of Rs 2 each.

State Bank of India netted around Rs 2,800 crore by selling a part of its stake in SBI Cards in the IPO that closed on March 5, 2020.

Net gains to SBI from the IPO are, however, likely to be lower as it will have to pay long-term capital gains tax gains (LTCG) on the profits that it will book in the share sale. LTCG is currently levied at the rate of 10 per cent on the gains made over Rs 1 lakh.

“The SBI Cards IPO closed at an opportune time as the proceeds can be easily invested in YES Bank without forcing SBI to alter any of its own growth and investment plans,” said a source, speaking on the condition of anonymity.

According to industry sources, YES Bank requires fresh capital of around Rs 25,000 crore to come out of its financial difficulty, based on its balance sheet and reported bad loans at the end of September 2019.

“According to its latest available balance sheet, YES Bank’s total bad loans were estimated to be around Rs 50,000 crore. The bank had core capital or shareholder’s equity of around Rs 25,000 crore at the end of the H1FY20 (first half of financial year 2019-20) and needed a similar amount of fresh equity to cover the rest of losses on account of bad debt,” a banking analyst said.

He added, however, that the quantum of bad loans could rise further or even reduce, as the bank is yet to declare its finances for the third quarter of FY20. YES Bank had earlier announced plans to declare its Q3FY20 results by March 14, 2020.

Some analysts also said SBI Cards would allow SBI to fund its future capital infusion in YES Bank. “SBI Cards is expected to list with a market capitalisation of around Rs 70,000 crore, which is likely to rise further, given its earnings record. Give this, SBI can further dilute its stake in the company to make additional capital infusion in YES Bank when needed,” an industry source said.

After the IPO, SBI’s stake in its cards venture will decline to 70 per cent, valued at around Rs 49,000 crore based on the offer price.

Otherwise, YES Bank’s assets base is around 10 per cent that of SBI. YES Bank had total assets of around Rs 3.5 trillion as on September 30, 2019, against SBI’s Rs 37.5 trillion. Of this, SBI core capital or net worth was around Rs 2.32 trillion at the end of H1FY20, compared to YES Bank’s Rs 27,970.

Yes Bank rescue maths

Rs 2,450 crore: Capital infusion by SBI 
Rs 2,800 crore: Proceeds from SBI Cards 
Rs 50,000 crore: YES Bank bad loans# 
Rs 27,700 crore: YES Bank own equity*  
Rs 25,000 crore: Additional capital required 
Rs 232,000 crore: SBI equity* @September 2019  
Rs 224,505 crore: YES Bank advances* 

*At the end of September 2019, 
#Analysts’ estimates at the end of September 2019

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