LIC may have to join hands with SBI to bailout and reconstruct Yes Bank

LIC may have to join hands with SBI to bailout and reconstruct Yes Bank

State-owned insurer Life Insurance Corporation(LIC) may consider joining hands with SBI in RBI efforts to rescue the cash strapped Yes Bank.

This can help to increase capital infusion under the draft reconstruction scheme of Yes Bank designed by the Reserve Bank of India, which was made public on Friday.

News agency IANS quoted official sources as saying that RBI, SBI and finance ministry officials were in touch with the insurer to know its interest to participate in the scheme. LIC spokesperson  comments is still not received. 

"There are many potential investors who have approached SBI after seeing the scheme of reconstruction for Yes Bank," and also interested to invest said SBI Chairman Mr Kumar on Saturday on his official statement.

At the end of the December quarter(Q4), LIC, which already holds about 8.06% in Yes Bank, had an exposure of ₹8,051 crore to the lender's debt instruments.

For LIC, recovery of Yes bank is important as it itself has large exposure in bank's debt instruments that has now been downgraded by all rating agencies like moodies and Crisal. 

At the end of the December quarter (Q3), LIC had an debt exposure of ₹8,051 crore to the debt instruments of Yes Bank," reported IANS.

“We are in a comfortable position to infuse funds into Yes Bank ." SBI Chairman said they willing to invest as much as₹10,000 crore over time in phased manner in Yes Bank to keep it operational, stressing that the rescue was not a merger but investment. SBI won’t be involved in Yes Bank’s daily operations, Mr Kumar said.

Kumar sought to told Yes Bank’s customer that their money is “not at all at risk" and that SBI’s investment was not against its own equity shareholders’ interests. 

SBI has made a minimum commitment to own 26% in Yes Bank, Mr Kumar said.

SBI will try to approve the reconstruction of Yes Bank much before the 30-day RBI imposed moratorium ends, Mr Kumar said.

SBI will not be allowed to reduce its stake to below 26% as per rules for at least three years. 

All debt instruments issued by Yes Bank which qualify as Additional Tier 1 capital will be written down permanently, according to the RBI's action plan.

In its draft 'Yes Bank Ltd. 

Reconstruction Scheme, 2020', RBI said the strategic investor bank will have to pick up 49 per cent stake and it cannot reduce equity holding to below 26 per cent before end of three years from the date of capital infusion. The draft came a day after the RBI imposed a moratorium on Yes Bank, restricting withdrawals to ₹50,000 per depositor till April 3 which may extended.

If the rumours about LIC's participation in restructure plan are true, it remains to be seen if LIC will bear the burden of 49% equity that SBI intends to pick up or not.If LIC ends up picking up a stake in Yes Bank, it will come close on the heels of a proposed LIC IPO, which was announced in her annual Budget by Finance Minister Nirmala Sitharaman Madam last month.

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