Yes Bank, a private bank in India, is likely to expand its capital investment to $ 2 billion for the current fiscal, which is higher than the previous figure of $ 1.2 billion. The bank’s share value increased significantly when the bank’s board announced plans increase its capital.
Foreign and Domestic Investors
For capital expansion, eight investors from foreign as well as domestic companies including SPGP Holdings and Citax Holdings Ltd. have expressed their plans to invest in the bank’s capital expansion.
Together, Erwin Singh Braich and SPGP Holdings are expected to invest $ 1.2 billion, which is nearly 60% of the total investment, and Citax plans to pool in $ 500 million.
The bank will release the name of the investors who committed to invest $ 120 million soon. Domestic investors include GMR Group, Rekha Jhunjhunwala, and Aditya Birla Family Office.
RBI Investigation against Erwin Singh Braich
Regulations restricting the involvement of foreign companies in the Indian bank system is likely to create problems for foreign investors.
As per the regulations set by the Reserve Bank of India (RBI), investors are prohibited from holding more than 10% share of any Indian private bank and the Central Bank of India is likely to investigate the investors, as some of them have a record of bankruptcy.
According to a media report, “Erwin Singh Braich had declared bankruptcy roughly 20 years ago”. In view of this development, the bank officials announced that the validity of the agreement would be reconsidered.
The bank officials announced that the board meeting would be held on December 10, 2019, to finalize the details of the investments. Regarding the issue of the preferential allotment of shares to investors, the board has already clarified that no company would own more than a 25% share of the bank.
Investment is Crucial for Yes Bank
The bank needs investors for its capital expansion, as its current equity capital is 8.70%, which is barely above the regulatory minimum of about 8%. Moreover, Yes Bank recently faced issues due to bad loans and non-banking lenders, which today, caused a decline in the share price of about 4%.
In September 2019, the bank reported of having Rupees 1,259 crores as non-performing and Rupees 2,018 crores for bad loans.
Another backlash for the bank is the exclusion of big investors. According to the CEO of the bank, RavneetGill, “The new shares will be priced at around 78 rupees ($1.09) each based on the average over the past six months that would represent a 14% premium to Yes Bank’s closing price of 68.30 rupees on Friday”.
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