YES BANK CRISIS
BY NANKIE BAWA 5 Mins Read
Crisis in the banking sector doesn’t seem to end. Everybody knew that there was a crisis in Yes Bank for the past 3 years. Finally, RBI has taken over Yes Bank and imposed a moratorium of 30 days. There was a sense of panic among depositors as they can withdraw only Rs 50,000 till the moratorium is not lifted. There are around 29 Lakh savings accounts with the bank (retail depositors). Panic and chaos was witnessed at the branches of the bank.
Even
after the moratorium is lifted we will have to see if depositors’ faith can be
restored. The biggest news is the rescue plan: SBI will take 49% of equity in
the bank. SBI will have to put Rs 5,000 crore at Rs 2 per share. More liquidity
infusion is required. SBI will have to invest another Rs 12,000 crore to keep
the bank alive. Yes Bank has a massive balance sheet of around Rs 2,40,000
crore. And to run the bank around Rs 30,000 crore is required. So, the big
question is SBI will invest Rs 12,000 crore, but where will the rest of the
money come from?
Since Yes Bank will be in SBI’s control as an investor it will
try to rebuild trust in Yes Bank. Share prices of Yes Bank may rise and then
SBI will sell the shares to another partner at a higher price to reduce its
equity to 26%. Government says it is with the RBI in the rescue plan.
Depositors need not worry about their money. Big banks are not allowed to fail.
Yes bank was India’s 5th biggest private sector bank. They had big
balance sheets. They were known for giving risky loans. They used to give loans
at higher interest rate and they paid higher interests to their depositors too.
Finance Minister today said that the bank gave loans to companies Reliance
(Anil Ambani Group), Essar, Cox and Kings, Café Coffee Day, DFHL and the money
was loans. The NPA's rose 8%. The quarterly results have been delayed. Since RBI
is forcing bank to declare total NPA's people fear that the NPA's could be
between Rs 30,000-40,000 crore. And if this news would have come out the bank
would have faced severe crisis because of systematic risks.
RBI has taken the
right step though it’s very late. RBI’s scrutiny came very late. Experts in
Mumbai have been talking about the business model of this business bank for the
past 4-5 years. Under Rana Kapoor, the bank was know to take and give loans to crony
capitalists and friends. When Rana Kapoor was caught doing this he was asked to
leave after his term, which was over in January 2018. Experts also say he
should have been terminated earlier. Therefore the crisis deepened. Everyone
knew that this bank will come under serious crisis. RBI could have taken prompt
corrective actions early. If they would have done this even 6 months before
things would have been better for Yes bank. RBI thought with new management and
CEO, new investors will come. There were reports of investors coming but in
reality there was no one. Even in the new management when new investors didn’t
come and full NPAs were not disclosed. RBI pulled the trigger and took control
of the bank.
We will have to see who becomes the next CEO after restructuring.
We will have to see how much confidence the new CEO can bring among the
depositors otherwise they will keep the money in some other banks. The message
would be sent across the board that since the bank is now a subsidiary of SBI
you can keep your money here. In digital payments this bank had a major role to
play because of which services of PhonePay have been disrupted. Experts say
that when it comes to digital payments this bank had a futuristic model.
This
situation has emerged when India is going through an economic crises. We saw
IL&FS, DFHL, PMC Bank crisis. In the case of PMC Bank RBI said they don’t
monitor cooperative banks completely. The role of NBFC is also a mixed one. At
a time when we used to here good stories of private banks like HDFC, Kotak
Mahindra, ICICI Bank, a star called Yes Bank came and drowned. Talks were
always around that Yes Bank gives risky loans and there should be a scrutiny.
But nothing ever came in RBI’s inspection report. Some experts allege
criminality also. Since the primary concern right now is rebuilding investors’
confidence we don’t think any action against criminality would be taken
immediately. If Rs 25,000 crore of capital infusion would have been done in the
case of IL&FS, NBFCs would have been saved from its effect. Same happened
with DHFL.
Since Yes Bank is a big bank it cannot be allowed to fail. But if
steps were taken earlier this situation would have not have arrived. Yes bank
investors lost around Rs 1 Lakh crore in banking sector at the stock market.
SBI’s share price also dropped. Yes Bank shares are completely floored. Earlier
a broker had flagged about the overpricing of Yes Bank shares at the stock
market. So, who is responsible for this? First, management is responsible but
no action was taken against them. Then, regulator also didn’t show any
strictness. Everyone from the management to shareholders, investors, regulators and
Government of India is accountable.
You can say that action is being taken.
There is a rule of Banking; swift and severe action should be taken. The action
over here is delayed and inadequate. Government doesn’t want to show that it is
helping a private bank. Since the crisis is deep there was no way out. If this
bank would have failed India’s rating would have been affected. We are already
in the middle of an economic slowdown. This was a very desperate move. We can
only hope that people’s faith will be restored after SBI takeover. The crisis
isn’t over yet. Experts say there are other banks as well which have stressed
balance sheets.
Now government says that this happened due to UPA government.
In response, P Chidambaram, said in 2017 the total loan given by the bank was
Rs 1,40,000 crore. In 2017-18 when it was flagged that the bank is not
disclosing NPAs properly this laon amount rose to Rs 2,40,000 crore. In UPA’s
tenure the bank had only Rs 50,000 crore of NPAs. But finance minister alleges
UPA’s role in it.
Keeping the politics aside, the truth is the NPA of the bank
rose in these 5 years. I told you earlier where this bank lost most of its
money. We can only pray that this mess gets over. But it doesn’t look like it
is going to end any time soon. Mess in the banking sector chokes the economy.
Despite recapitalization the value of public sector is very low. The value of a
big private sector bank equals the value of 3-4 public sector banks. Apart from
taking essential strategic decisions the government should come out of PSU
sector as soon as possible. In the national interest the government should show
political will to come out of the busineses of PSUs and to hand over a good amount of power to the RBI, so that it can truly play its role as the regulator without any interference from the