The logo of Yes Bank on the head office building in Mumbai, India. Photo: AFP/Himanshu Bhatt/NurPhoto

Shares of the troubled private sector lender Yes Bank, which has suffered a sharp erosion of market capitalization, rose more than 5% on Thursday when a prominent Indian banker hinted it would not be allowed to shut down.

Rajnish Kumar, who heads the largest state-owned lender State Bank of India, told the media that Yes Bank was a “significant player” in the market and “will not be allowed to fail.”

He said it would not be good for the economy and was hopeful a solution would be found. Kumar is in Davos to attend the World Economic Summit.

There has been speculation that the Indian government may ask the State Bank of India to play a role in bailing out the troubled bank. However, Kumar denied these reports.

Earlier last month Kumar said the country’s third largest private sector bank Kotak Mahindra Bank was best suited to buy Yes Bank. “I think Uday Kotak (the founder of Kotak Mahindra Bank) is the best candidate to acquire Yes Bank. You need deep pockets, Uday has that,” he said at a public event in New Delhi.

Earlier this month the bank told the stock exchanges that it had convened an extraordinary general meeting of its shareholders on February 7 on fund raising for 100 billion rupees (US$1.4 billion) and would authorize an expansion in its authorized capital from the current 8 billion rupees to 11 billion.

It also notified the exchanges that its board of directors had approved the raising of funds through Qualified Institutional Placement, Global Depository Receipts, American Depository Receipts, Foreign Currency Convertible Bonds or any other method on a private placement basis.

The board also decided not to proceed with the proposed investment offer of Erwin Singh Braich/SPGP Holdings, while it is open to considering the $500 million offer from Citax Holdings and Citax Investment Group. The final decision will be taken at the next board meeting.

In November 2019, the bank said various investors have expressed a willingness to subscribe to equity shares of the bank. None of the investors would be allotted equity shares so their holding exceeds 25% of the share capital of the bank.

Founded in 2004 by Rana Kapoor and his brother-in-law Ashok Kapur, Yes Bank managed to grow its corporate and retail loan book aggressively. However, in 2008 Kapur died during the “26/11” terrorist attack that rocked Mumbai.

Rana Kapoor then took full control of the bank, but the going was never smooth. He had many run-ins with co-owners Ashok Kapur’s wife and daughter, and the two sides ended up in courts.

Yes Bank’s finances deteriorated due to its exposure to stressed assets such as Jet Airways, IL&FS, CG Power, Café Coffee Day and Cox and Kings.

It also landed in controversy after it faced strictures from the Reserve Bank of India over the understatement of bad loans for two consecutive years. The central bank had given its marching orders to founder and chairman Rana Kapoor, who stepped down last January. He was succeeded by Ravneet Gill, the current chief executive of the bank.

Yes Bank has a pan-India presence with 1,120 branches, 1,456 ATMs and an employee headcount of 21,136 as of March 31, 2019.

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