Another bank, another bail-out. And yet no hope of cleansing of the banking sector. So deep-rooted is the rot in the country’s financial system, there is no knowing when the best in the business would collapse like a house of cards. Till only the other day, Yes Bank was considered one of the better private sector lenders, enjoying enormous goodwill among the lay public and the financial community. In a way, its success may have proved its undoing. Rana Kapoor, a co-founder, showed utter bad grace trying to undermine the contribution of a fellow co-founder, Ashok Kapur, who was killed in the 26/11 Mumbai terror attack. He maltreated his family, needlessly engaging it in a protracted legal and regulatory dog-fight. This detracted the Yes Bank board from the more urgent task of consolidating its financials. After he found himself ejected out of the bank by the regulator two years ago, more dud loans were discovered. Apparently, Kapoor had been rather reckless in extending loans to unsound borrowers. Anyway, the new board manfully tried to dyke the dam but failed, partly due to the RBI flat-footedness. Anyway, that is in the past. The failing bank has been saved from going bust along with small depositors’ small savings. The regulator has assured that these are safe. This should be reassuring. It would have helped if the regulator had not caused panic by capping the withdrawals at Rs 50,000 per account-holder. Instead of restoring calm, it led to huge queues outside the bank ATMs throughout the country. But as they say, better late than never. With a commendable dispatch after the initial foot-dragging the authorities moved with speed, announcing a reconstruction scheme and tasking the State Bank of India to lead the rescue operations. The SBI will invest capital up front, acquiring 49 per cent equity of the private lender at Rs 2,650 crores. That is a premium of Rs 8 on each Yes Bank share of Rs 2 face value. Fittingly, there will be a three year lock-in on the SBI stake and even after that period it shall not reduce its stake below 26 per cent. That is one solid, stable stake-holder in the reconstructed private bank which should generate public confidence in its operations after what Rana Kapoor had done to maul what, undoubtedly, to a large extent was his own creation. Hubris causes many a downfall. If the bail-out plan reassures ordinary depositors, it has, however, caused panic among bond-holders. Additional Tier-I bonds amounting to Rs 10,800 crores could be rendered zero if the RBI reconstruction plan for the troubled bank goes unchallenged. Holders of these bonds, some of the prestigious domestic and foreign players, are now planning to mount a legal challenge.
Meanwhile, there are awkward questions for the regulator as to why it did not place Yes Bank under its Prompt Corrective Action framework, though technically it may not have overstepped the prescribed red lines. Also, the delay by the new board, since superseded, in accessing a white knight who would invest a chunk of money in return for a seat or two on the board killed the revival plan. Not unlike several other banks saddled with huge bad debts and bailed out with large infusion of funds by the central bank, Yes Bank too was not too prudent in lending. Some of the terribly mismanaged entities such as ILFS, DHFL, Reliance, the Anil Ambani group, etc., are big defaulters. Whether the raids on Rana Kapoor’s house on Friday yielded incriminating evidence is not known. But for now Yes Bank seems to have been rescued from the brink of collapse. Meanwhile, Finance Minister Nirmala Sitharaman is turning out to be quite adept in responding in kind to former Finance Minister P Chidambaram, holding a mirror to him when he criticises her handling of Yes Bank and other such crises. Chidambaram, facing corruption probes along with his son and wife, loses no opportunity to ridicule Sitharaman as incompetent. As she reminds him, his record was no better in this regard, if not worse. Pot should cease calling the kettle black.
