Yes, no, maybe

As Yes Bank hits a dead end after a year-long turmoil, the government turns once again to SBI for help 

Published 4 years ago on Mar 11, 2020 3 minutes Read

With bad news after bad news every day in our feeds, we have become adept at spotting the comic in the tragic. Take the magnificent fall of the once shining private bank for instance. People took to social media platforms to express their anger, shock, and in many cases, dry sense of humour. The hashtag #YesBankCrisis saw hilarious tweets — from renaming Yes Bank as ‘Sily’ Bank (SBI + LIC + Yes) or ‘No’ Bank, to a parody PM Nehru account reminding everyone that Yes Bank was founded in 2004, and hence, he can’t be blamed for it. Nevertheless, finance minister Nirmala Sitharaman was adamant that the UPA government let Yes Bank lend to dubious borrowers.

So, let’s understand the chronology. It was one of the top three private banks in the country till two years ago, but due to massive bad loans, its financial performance took a hit and the founder and CEO was forced to resign. Outlook Business’ November 2019 cover story on Rana Kapoor, had said the bank was also under reporting its NPAs, and things started falling apart in 2017 when the RBI cracked down hard. Fast-forward to now when investors won’t touch it with a bargepole and the company had deferred announcement of its Q3FY20 earnings, which is now scheduled for March 14. That’s when the RBI directed SBI to pick up 49% stake for Rs.24.50 billion in “public interest and interest of the bank’s depositors”. LIC, the perpetual white knight, may also have to step in. For now, Yes Bank is under a moratorium for a month, with a withdrawal cap of Rs.50,000, within which RBI hopes the restructuring proposal will be implemented. The regulator will also appoint a new board of directors and media reports state that Yes Bank’s auditor BSR & Co is also under being questioned. Meanwhile, the Enforcement Directorate interrogated Kapoor for his involvement in the DHFL scam, with an accusation that he was signing big cheques for personal gain. According to another Outlook Business report, Kapoor and his family made over Rs.20 billion in under-the-table trade-offs.

As per Fitch Ratings, the RBI takeover “casts light on governance risks in India’s banking sector”. In a note, the agency stated that it “could backfire if it prompts depositors to shift their money to institutions that are perceived to be safer”. IIFL Securities cites a negative outlook for SBI, stating, “The RBI/GoI has proved that minority shareholders in a PSU entity have no say.” Experts are also expecting a contagion effect on the entire Indian banking system. After all, Yes Bank has 1,120 branches and over 1,450 ATMs and an exposure of Rs.2.5 trillion. Neither they nor the analysts are privy to the details of the bailout efforts. Until then, the memes keep rolling in.