UPDATE 1-India approves Yes Bank rescue, private bank will also buy stake

Aftab Ahmed and Nupur Anand

(Recasts, adds details and background)

MUMBAI/NEW DELHI, March 13 (Reuters) - India's finance minister said on Friday the cabinet had approved a rescue plan for Yes Bank, a step aimed at preventing the issue from sparking a broader banking crisis.

Under the plan, state-owned State Bank of India (SBI), the country's largest lender, would take a 49% stake in Yes Bank, Finance Minister Nirmala Sitharaman said.

Private lender ICICI Bank also said on Friday it would invest up to 10 billion rupees ($135 million) for a 5% stake in Yes Bank, which is India's fifth-largest private sector lender.

"The decision to provide a reconstruction scheme keeps at its core the protection of depositors' interest, keeps at its core providing stability to Yes Bank and also keeps at its core keeping a stable financial environment and banking system," Sitharaman told reporters in New Delhi.

This month, India placed Yes Bank under a moratorium because of a serious deterioration in the lender's financial position.

The moratorium, a move to reassure depositors by handing control to the central bank, would be lifted within three days once a government notification is issued, the minister said.

She did not give a precise timeline.

Private investors that join the rescue deal will need to maintain at least 75% of their investments for a minimum of three years, she said.

SBI, which had said it would invest 72.50 billion rupees ($977 million), will not be allowed to reduce its stake to below 26% for at least three years, Sitharaman added.

The Reserve Bank of India last week increased Yes Bank's authorised share capital, paving the way for a cash injection.

The authorised share capital of Yes bank had now been hiked to 62 billion rupees from 11 billion rupees, Sitharaman said. (Reporting by Aftab Ahmed in New Delhi and Nupur Anand in Mumbai; Chandini Monnappa in Bengaluru; Editing by Alexandra Ulmer and Edmund Blair)

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