New Delhi: The Reserve Bank of India has imposed a moratorium on the floundering Mumbai-headquartered Yes Bank, which was once a darling of investors, and capped withdrawals at Rs 50,000.
Such is the deterioration in the private lender’s financial position that the RBI has also superseded with immediate effect the Yes Bank board for a 30-day period.
Former SBI CFO Prashant Kumar will be the administrator during this period. An RBI statement said the regulator was doing so in ‘‘public interest.’’
"This has been done to quickly restore depositors' confidence in the bank, including by putting in place a scheme for reconstruction or amalgamation," the RBI release stated.
The desperate gambit has come six months after the regulator tinkered in a similar fashion with the city-based cooperative lender PMC Bank.
The RBI, sources said, had no option but to intervene and impose a moratorium in view of the Yes Bank’s inability to address the potential losses on account of bad debts.
The intervention came in the backdrop of speculation about a bail out, which will be propped by public sector lender SBI and some other financial institutions. Insiders, however, said the bailout would be for all intents and purposes funded by the tax payer.
A research report by Macquarie Capital on Thursday pointed out that the SBI and other public sector banks need not pay more than Re 1 for Yes Bank share.
Macquarie pointed out that the private lender’s net worth is zero and there is a lack of clarity on the bank's deposit franchise due to the solvency issues.
Nonetheless, YES Bank's stock rose 26 per cent to Rs 37 per share following the development which increased the cost of buying a majority stake in the bank to Rs 1,900 crore, if done at the current market price. SBI's shares had fallen nearly 4 per cent after the news but recovered and were later trading 3 per cent higher at Rs 293.
In a day of rapid developments, which also included a board meeting of the SBI, there were reports that LIC has been asked to team up with the public sector bank for the stake buy. Together, their holding has been pegged at 49 per cent.
LIC already owns 8 per cent of the crisis-hit bank.
Significantly, a few weeks ago, amid speculations of a government bailout, SBI Chairman Rajnish Kumar had said the troubled bank will "not be allowed to fail".
The writing was on the wall for the private lender ever since the new chief executive, Ravneet Gill, took charge last March and revealed massive stress in the loan book. The bank had to make provisioning for the stress and was also forced to go slow on fresh loans.
Yes Bank has been also struggling to raise USD 2 billion in equity for the last few months. Many proposals came up for discussions, but none fructified.
Such a bailout, if it happens, will be significant because it will be the first time in many years that a state-run entity has rescued a private sector universal bank.
Following the 2008 financial crisis, there was a huge outcry in the developed markets like the US over public money being used to bail out erring private entities.
Sources said the Union government has cleared a plan for the SBI-led consortium to acquire a controlling stake in the Yes Bank.
There was a discussion on the issue at SBI's board meet in Mumbai on Thursday, but it was not immediately clear if any decision had been taken.
Action is likely to shift to the national capital from here on, because picking up a stake in any bank may require changes in the State Bank of India Act as well, sources said.
This will also be the second time after IDBI Bank that LIC will be playing the role of a knight in shining armour.
Terming it as a "quasi sovereign bailout", J P Morgan said, "We believe forced bailout investors will want the bank to be acquired at near zero value to account for risks associated with the stress book and likely loss of deposits."
Yes Bank's share price has declined by over 80 per cent from a peak of Rs 400 since the removal of its co-founder and chief executive Rana Kapoor by the RBI on corporate governance concerns following two consecutive years of bad asset under-reporting to the tune of over Rs 10,000 crore.
Kapoor holds only 900 shares of the bank now, after defaulting on a loan against pledged shares and the lenders revoking the securities in September last year.
Over 62 per cent of the Yes Bank book is high-value corporate loans, and some of its bets on infrastructure, energy, non-banks and media space have backfired for the lender, leading Ravneet Gill to flag the potential stress of Rs 10,000 crore.
MAIN INPUT PTI
