Thread by @deepakshenoy

Excellent - RBI puts up scheme of reconstruction for Yes bank. I will give you a detailed explanation in this thread.
rbidocs.rbi.org.in/rdocs/PressRel…

1. Massive dilution. Yes bank currently has 255 cr. shares. It will, in the plan, be expanded to 2400 cr. shares . Basically 90% dilution at the extreme. But this can change depending on how much SBI wants to invest (so it could be lesser dilution)

2. SBI will hold 49% of the equity. Presumably to avoid this becoming a PSU bank which does all sorts of nastiness to the ability to fire etc.

If SBI puts in money at current equity only, it will only add 2500 cr. (250 cr, shares at Rs. 10) and everyone sees a 50% dilution.

If SBI needs to put in more (because you know, losses) at say 5,000 cr. then they will have to raise another 2,500 cr. from other places (QIP or such). This means higher dilution - in the example above, roughly 66% dilution.

This can be in phases - 2500 cr. in now, rest later

3. The plan doesn't say anything about phases of adding money, but it will require SBI to keep at least 26% of equity in the near future.

This is good if external management can be found - to take it up, and do QIP later.

4. All Basel III AT1 bonds are zero. Zilch. Gone. Nothing. Basically if you hold any Additional Tier 1 Basel III bnds, you have lost ALL the money.

Basel II bonds, and Tier II bonds will continue as they were.

5. All deposits, loans and payments etc will continue EXACTLY as they were earlier. Nothing will change.

Your deposits are safe. The moratorium will be lifted after SBI and RBI approve the plan.

The new Yes Bank will be owned by SBI.

This is very good but is it enough? We don't know how much SBI will need to add, going forward, based on further losses discovered.

But it appears they may be a virtual "backstop" of sorts - even if 15,000 cr. is needed, it will be added, partly by SBI and partly external.

Two things have happened. There is a FULL rescue of all deposits. No need to think of 5 lakh deposit insurance or whatever - even if you have 5 cr. deposits, you won't lose anything.

Second, the shares will trade at some value. It won't go to zero.

If you folks want, I can quickly periscope this as a video. Ask your questions.

Note that AT1 bonds are some of what were held by the mutual funds.

This is something we've mentioned in our bond tutorial as a major risk in perpetuals. (capitalmind.in/2016/09/what-a…) [Plugging our Premium piece, I know, but hey]

One pain point is that sbi may not be able to stop the outflow of deposits until they clearly say that deposits are guaranteed by sbi itself