Yes bank Ltd. has been facing various chaos and financial disturbances since 2018, and the bank was looking for some investment options to control the business losses and rectify its assets-liabilities misbalance. For this, the bank has undergone so many changes to overcome from this crisis situation like the appointment of Ravneet Gill as MD and CEO, taking control of Mr. Rana, obtaining bids from the foreign investors and more. However, unfortunately, the situation could not be improved owing to a number of problems due to regulatory and other issues. Moreover, the bank has lost its market value from Rs. 174 per share to 29 per share (currently around 17 per share after the issue of Yes Bank Reconstruction Scheme).
RBI Intervention and introduction of Yes Bank Reconstruction Scheme
The rapidly deteriorating financial position of Yes Bank Ltd. relating to liquidity, capital and other critical parameters, and the absence of any credible plan for infusion of capital has necessitated Reserve Bank of India to take immediate action in the public interest and particularly in the interest of the depositors. Accordingly, Yes Bank Ltd. was placed under moratorium by an order notified by the Central Government on March 5, 2020.
In terms of section 45 of the Banking Regulation Act, 1949, during the period of the moratorium, the Reserve Bank of India may if so considered necessary in the 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 concerned banking company.
State Bank of India has expressed its willingness to make an investment in Yes Bank Ltd. and participate in its reconstruction scheme. The scheme is called ‘Yes Bank Ltd. Reconstruction Scheme, 2020’
Key Highlights of Yes Bank Reconstruction Scheme
Major Highlights of the scheme are as follows:
Change in Share Capital
- The Authorised Capital shall stand altered to Rs.50,00,00,00,000 (Rupees Five thousand crore only) and the number of equity shares will stand altered to 24,00,00,00,000 (two thousand four hundred crores only) of Rs.2/- (Rupees Two only) each aggregating to Rs.48,00,00,00,000 (Rupees Four thousand eight hundred crores only).
- The investor bank must agree to invest in equity of the reconstructed bank to the extent of 49% of the shareholding, post-infusion of the reconstructed bank.
- The Investor bank shall not reduce its holding below 26% before completion of three years from the date of infusion of the capital.
Alteration of Articles of Association of Reconstructed bank
The following Articles of Articles of Association will stand deleted:
- Article 110(b) – This relates to the rights of Indian Partners to recommend the appointment of three “IP Representative Directors”.
- Article 127 (b) – This relates to the right to Indian partners to recommend the name of Chairman and CEO
- Article 127A (a) – This relates to need of recommendations of promoters to appoint Whole Time Director’s
- Article 127A (b) – This relates to WTD to necessarily be out of board members
Constitution of the Board of Directors
- The office of the Administrator of Yes Bank Ltd. appointed by the Reserve Bank shall stand vacated, and a new Board will be constituted.
- The investor bank shall have two nominee directors appointed on the Board of the Reconstructed Bank.
- Reserve Bank of India may appoint Additional Directors
- It will be open to the Board of directors of Yes Bank Ltd. to co-opt more directors to it, so however that the total membership in the Board, excluding the Additional Directors appointed by the Reserve Bank of India shall not exceed the maximum prescribed by the Articles of Association.
- The appointment of the directors as above shall have an effect, notwithstanding non-fulfillment of the requirement as to minimum shareholding, qualification, etc. as other conditions for becoming the board member of Yes Bank Ltd.
- 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 Ltd. through the normal procedure laid down in its Memorandum and Articles of Association, whichever is later.
- Any defect in the constitution or any vacancy in the Board shall not invalidate any meetings conducted by the Board or any decision taken by it.
Rights and Liabilities of the Reconstructed Bank
- All contracts, deeds, bonds, agreements, powers of attorney, grants of legal representation and other instruments of whatever nature, existing 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 people who are a party to any of the aforesaid instruments or arrangements to give effect to above.
- 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.
- No account holder shall be entitled to get any compensation from the Reconstructed bank on account of the changes occurred in the Reconstructed bank by virtue of the Scheme.
Continuation of services of the employees
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 (T&C), 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. Board of Directors of the Reconstructed Bank will, however, have the freedom to discontinue the services of the Key Managerial Personnel (KMPs) at any point in time after following the due procedure.
No change in the offices or branch network of the Reconstructed bank
The offices and branches of the Reconstructed bank shall continue to function in the same manner and at the same places they were functioning prior to the effective date, without in any way being affected by this Scheme.
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 Reserve Bank and complying with the necessary terms and conditions.
Furnishing statements and information
The Reconstructed bank shall submit to the Reserve Bank such statements and information as may be required by the Reserve Bank from time to time, regarding the implementation of the Scheme or any other related matter.
Manner of service of notice
Any notice or other communication required to be given to the Reconstructed bank shall be considered to be duly given if addressed to and sent by speed post or by courier or by pre-paid ordinary post or by email at the address of the registered office of the Reconstructed bank
Any notice or communication, which is of general interest shall be advertised, in addition, in one or more daily newspapers, which may be in circulation at the place where the registered office of the Reconstructed bank is situated.
Scheme to have effect notwithstanding any other law
The provisions of the Scheme shall have effect notwithstanding anything to the contrary contained in any other law or regulations or directions or agreement, award or other instruments for the time being in force.
Interpretation of the provisions of the Scheme
If any doubt arises in the interpretation of the provisions of the Scheme, the matter shall be referred to the Reserve Bank and its views on the issue shall be final and binding on all concerned.
Removal of difficulties
If any difficulty arises in giving effect to the provisions of the Scheme, the Central Government may, in consultation with the Reserve Bank, by order, as occasion arises, do anything not inconsistent with the provisions of the Scheme, which appears to it as necessary for the purpose of removing the difficulty.
Yes Bank was one of the highest-rated new generation private banks until 2017 when the bank started to face serious bad loan issue. To stabilize the bank, Yes Bank Ltd. Reconstruction Scheme, 2020 was introduced by the Reserve Bank of India. RBI had also imposed temporary restrictions regarding the withdrawal of deposits. SBI board has given in-principle approval of exploring the possibility of picking up a stake of up to 49 percent in Yes Bank. However, the deal is not finalized yet.
To protect the depositors, the bank must be quickly reconstructed. Also, steps should be taken to liquidate the NPAs. If Yes Bank is resolved effectively, it will protect Yes Bank’s depositors, and maintain trust in the entire banking system.
Read our Article: Yes Bank Collapse: Is the money of depositors safe?