The freshly constituted board of directors of Yes Bank will hold a meeting later this week to take up the issue of raising funds. It was the undue delay in raising funds by the erstwhile management that prompted the Reserve Bank of India to step in and hand over the distressed lender to the State Bank of India. SBI has roped in a few more banks and investors and around ₹10,000 crore has already come in. In its meeting on Thursday, March 26, Yes Bank’s board will consider if equity shares, depository receipts, convertible bonds and warrants or any other instrument can be used to raise funds.
Apart from these, there are other routes available, like qualified institutional placement (QIP), rights issue or further public offer to raise funds. All these will require due approvals from the designated authorities, mainly RBI.
Yes Bank has been the beneficiary of another largesse from the central bank. RBI has extended a line of credit of ₹60,000 crore, which the bank can draw against to meet obligations. This is a facility available under Section 17 of the RBI Act of 1934, as amended. This permits the central bank to extend special lines of credit to any lender but it has to be backed by some kind of a collateral, including equity shares.
RBI appears to have taken this step of extending this facility to Yes Bank with the clear view that the bank has been facing a liquidity issue and not a solvency issue. If it was an issue of solvency of the bank, RBI would not have extended this credit line.
It may be pertinent to note that Yes Bank’s stock went up once RBI announced those measures including a plan for revival and reconstruction. The stock has been hammered down after that but that is part of the bear hug the stock exchanges are experiencing following the COVID-19 scare.