The government is set to approve a plan for State Bank of India (SBI) to buy a stake in Yes Bank, according to a Bloomberg report.
India's biggest lender will most probably be asked to form a consortium for this purpose.
The board of SBI, the country's largest lender, is meeting in Mumbai on Thursday, but it could not be immediately ascertained whether the takeover of Yes Bank is on the agenda.
Yes Bank, which is grappling with bad loans, is looking to raise fresh capital but the plans are facing uncertainties. It has also delayed the announcement of 2019 December 2019 quarter results due to the ongoing crisis.
The bank's capital buffers have come down due to non-performing assets.
The Yes bank scrip has surged 14 percent on the back of this news while SBI has witnessed a sharp decline.
Reacting to the newsbreak Abhimanyu Sofat, Head Of Research, IIFL Securities said, "We recommend caution to retail investors. The critical thing to watch would be percentage dilution of equity taking into consideration the conversion of existing bonds issued by Yes Bank into equity.”
Earlier, the bank in an exchange filing said that the bank had received strong interest from multiple foreign as well as domestic private equity and strategic investors.
The bank said, "It has now received a binding offer from a global investor for an investment of $1.2 billion in the bank through fresh issuance of equity shares, subject to regulatory approvals conditions as well as Bank's board and shareholders approvals".
Further, Yes Bank said in the usual and ordinary course of its business continues to explore various means of raising capital/ funds through the issuance of securities to a diverse set of investors to meet its business or regulatory requirements.
The bank also said that it would keep stock exchanges updated on disclosures required to be made under Sebi regulations.
Yes Bank has been passing through a tumultuous period ever since the Reserve Bank of India, in August 2018, asked the then chief executive Rana Kapoor to leave by January 31, 2019, amid concerns on governance and loan practices.
Under his successor Ravneet Gill, the lender has disclosed large under-reported stressed assets. The bank reported its maiden loss in the March 2019 quarter.
Yes Bank had initially planned to raise capital of over $2 billion in the current fiscal. Later, its board rejected a $1.2 billion investment in the bank by Canadian investor SPGP Group/ Erwin Singh Braich.
Mumbai-headquartered Yes Bank was incorporated in 2004. The bank's asset size stood at Rs 3,71,160 crore at the end of June 2019.
Promoters of Yes Bank -- Madhu Kapur, Yes Capital (India) Pvt Ltd and Mags Finvest -- hold 8.33 per cent stake in the crisis-ridden bank, as per data available on the stock exchanges. The bank's co-founder Rana Kapoor has sold his entire stake in the bank.
Besides, foreign portfolio investors hold 15.17 percent stake, state-owned LIC has 8.06 percent, and mutual funds own 5.09 percent.