The Banker Who Crushed His Diamonds by Furquan Moharkan (read novel full txt) 📕

Bank included H. Srikrishnan (the current head of Jio Payments Bank and Rana Kapoor’s colleague at Bank of America) and Ajay Mahajan (the current CEO and MD of CARE Ratings). But this was set to alter soon.

The structure was proposed to change as the bank planned an initial public offering (IPO). The shares of all the promoters would have come down by seven percentage points each as explained in the next figure.

Source: Draft Red Herring Prospectus

The banking licence granted by the RBI required that the promoter holding in excess of 49 per cent should be diluted after one year of the bank’s operation. It was also stipulated that the paid-up capital (which before the IPO stood at Rs 200 crore) must be raised to Rs 300 crore within three years of commencement of business.

The promoters, the promoter group companies and Rabobank International Holding, at the same time, executed a share subscription agreement (SSA) dated 5 November 2003, in which they agreed to subscribe to the equity shares along with the private equity investors (with whom a separate agreement was to be executed).

Under the terms of the SSA, the promoters agreed that a substantial part of the consideration received by them from the sale of their shares in Rabo India would be applied towards the subscription of the equity shares. The promoters had sold their stake in Rabo India (a subsidiary of Rabobank International) earlier in 2003, for about Rs 40 crore each.

To fill up for the remaining capital, Mags Finvest and Morgan Capital (holding companies owned by Ashok Kapur and Rana Kapoor respectively) were granted a loan of Rs 17 crore to fill in for the full capital.

As part of the SSA, the promoters agreed not to transfer their shareholding in Mags or Morgan, until the loans taken by Mags and Morgan from Rabobank International Holding for the purpose of the purchase of the equity were repaid.

The loan was to be utilized for subscribing to the 17 million equity shares of the bank as provided in the SSA. This loan had to be repaid within three years of the disbursement of the loan amounts. These loans were disbursed on 10 March 2004.

As security for the loan amount, each entity executed demand promissory notes—a signed document containing a promise to pay a stated sum to a specified person or the bearer at a specified date or on demand—in favour of Rabobank International Holding. Further, the promoters executed personal guarantees and demand promissory notes as security for loans to Mags and Morgan.

In case of a default, the shares held by Mags and Morgan, equivalent to the outstanding amount, were to be taken over a fair market value by Rabobank.

On 6 August 2003, the RBI had permitted the loans and advised that the loans availed from Rabobank International Holding should not be secured against the shares of the company. Subsequently, the bank had, by its letter dated 5 March 2004, intimated the RBI of the drawdown of the loans in accordance with the terms of the RBI letter dated 6 August 2003.

A drawdown loan allows you to borrow ‘in chunks’ and repay the full amount borrowed, rather than taking a loan for a larger amount that you might not need.

On 22 May 2004, the RBI asked that the loan agreements be filed with it. It also said that these loans should have a minimum average maturity of three years and that Mags and Morgan would be required to submit monthly returns to the RBI.

The loan agreements were filed with the RBI. On 23 and 24 June 2004, the RBI allotted loan registration numbers to these agreements.

Finally, the IPO of India’s new-age bank opened on 15 June 2005 and closed six days later. DSP Merrill Lynch Ltd and Enam Financial Consultants Pvt. Ltd were the book running lead managers to the issue and Karvy Computershare Ltd was the registrar. A total of 7 crore shares were on offer in the price band of Rs 38 to Rs 45. Of the total number of shares, 3.5 crore shares, or 50 per cent of the total issue, is reserved for qualified institutional buyers. The retail portion had been pegged at 25 per cent of the total offering. The bidding amount in the retail segment could not exceed Rs 50,000 per investor.

The retail portion of the issue was oversubscribed by 9.96 times and the non-institutional portion was oversubscribed by 43.68 times.

TIMELINE OF YES BANK

2001

Application to the RBI for a licence to start a new private sector bank

2002

Receipt of an ‘In-Principle’ approval from the RBI to establish the bank

2003

February: Extension of the ‘In-Principle’ approval for a period of six months

August: Further extension of the approval by the RBI till November 2003

November: Incorporation of the bank

December: Further extension of the approval for a period up to 29 February 2004 in order for the proposed bank to complete all financial arrangements

2004

10 March: Infusion of capital by the promoters and the private equity investors, and realization of the initial minimum paid-up capital of Rs 200 crore

29 March: Final application for banking licence under Section 22 (1) of the Banking Regulation Act made by the promoters

May: Licence to commence commercial branching received from the RBI

16 August: First branch established at Nehru Centre

21 August: Included in the Second Schedule of the RBI Act

23 August: Launch of wholesale and business banking

23 September: Launch of the financial markets services

14 October: Launch of transaction banking

2005

27 January: Second branch established at Nyaya Marg, Chanakyapuri, New Delhi

May: Forays into retail banking with the launch of international gold and silver debit card in partnership with Mastercard.

YES Bank announced that it will enter the capital market with its IPO on 15 June to raise Rs 266–315 crore. The issue closed on 21 June. The bank offered 7 crore equity shares of Rs 10 face value through a 100 per cent book-building route. The price band for the shares was fixed at Rs 38 to Rs 45

YES Bank’s initial public offer oversold 8.27 times on day 1

The YES