YES Bank drama
unfolding is a pure packed action for India is staring at its Lehmann like
crisis. The US Govt. had the option to save Lehman Brothers or get it down
under, and Govt. let it slide and that was the biggest mistake of the Govt. A
lot of names were called to Lehman Brothers CEO for his arrogance, but
ultimately companies can die any day, but a bank cannot die, it shakes the
economic system to its bone. The bloodbath of 2008 crisis could have been saved
had Lehman not collapsed but the US Fed still had lent its support to other
strong players.
India as an
economy, is doing fairly well, considering the fiasco and scam of IL & FS
(AAA) rated financial institution NBFC with book size above Rs. 1 Lakh Crs and
so is the case with DHFL. The cloud of crisis, these two have engulfed on the
whole shadow lending business. It literally translates to vanishing of more
than Rs. 2 Lakh Crores from the system with expected recoveries of 50%, which
is good scenario under the crisis. But how it hurts the system and disrupts the
economic pattern to govern the growth of developing economy like India.
YES Bank has
failed? Clearly so. Will it fall with a thud? The Govt. of India and RBI are
working overtime to ensure, it does not die. The Govt. of India has already
given a bailout to PSU Banks between 2014 to 2019, now the turn comes of
private banks. PSU Banks carry sovereign guarantee, irrespective, how poor they
perform, their depositors will stay with them, come what may.
Moving away from
YES Bank and the plan, RBI is proposing. We are discussing the other issue of
Telecom AGR dues, wherein Vodafone Idea LTD. (VIL) is in soup for its dues of
Rs. 55000 Crores and clearly company lacks the capability to raise funds from
market and cash flows certainly cannot help. Mr. Kumarmangalam Birla, the owner
of Aditya Birla Group, which owns Vodafone Idea has made it clear that VIL will
shut its shop, rather pay the whole dues or roughly saying not to take support
from other Group entities.
He certainly
understands, why ADAG Group, Vijay Mallya went bankrupt, because they continued
to pump money in their failing businesses from their thriving businesses. Whatever
fails due to market conditions (competition) or Govt. policies or perhaps poor
management to some extent, we need not resuscitate by artificial means. A
business should be independent in terms of raising capital (equity) or
arranging funds from Banks. As usual as our amazing nation is running, without
any clear policy or guidelines from the Govt. but every matter is discussed
thread and bare as per the whims and fancies of the Govt. So hence, VIL exists
currently and they are trying to work out a formula with the Govt. if the
Supreme Court allows. Why we are talking Mr. Birla amongst YES Bank is coming
up right now?
For YES Bank
failing, the question looms large on the regulator of the Indian banking and
financial system, that why did they not step in, during the previous quarter. When
the time given to YES Bank for raising capital had clearly passed and the
management of the Bank failed to generate enough resources to tide over the
crisis. Now when the water is almost into the nose, RBI steps in with
moratorium on withdrawal of deposits, much needed, otherwise it could have led
to Bank Run. No economy can ever afford a bank run, like we saw recently in
Greece.
The news of mass
level corporate frauds are flooding the newspapers for last two years in bulk,
with companies failing with banking exposure of Rs. 500 Crs to Rs. 1.25 Lakh
Crs. Only on the basis of those news reports and fact checking with MCA data,
we know the hole which is screaming from the YES Bank’s balance sheet. For the
bank of its size, the amount of exposure YES Bank had taken in corporates laced
with fraud is clear as a whistle. The minimum estimated size of the hole must
be exceeding 20% of the advances, we don’t need a genius to suggest that it literally
suggests to washing away of half the deposits. Who will put money in YES Bank,
who will buy their financial instruments? Bank is managed only by maintaining a
high level of churning in their financial instruments.
Now RBI is
running pillar to post, working over time to ensure the dooms day does not fall
upon the Indian economy and it will not, even if they have to freeze the whole
banking infrastructure. But the question remains, why so late? RBI’s current
actions also suggest, that they are trying to put the handle on the situation,
when it should have been in its grip.
I am amazed why
the merger of YES Bank is not announced, it is done, it is evident, there is no
way to protect the Bank. A Bank is built on deposits which only emanate from
trust. The word ‘Bank’ literal meaning is TRUST. A Bank cannot function without
its fundamental. YES Bank does not have left any trust for its deposit holders
to keep its money in the Bank, even if SBI is there for the rescue and all the
marquee bank names are lined up by RBI. If given the freedom to address the
issue, private banks will say, they are putting money in YES Bank out of their CSR
fund, it is not an investment. It is charity we are doing with our head stuck
to the barrel.
Which depositor
will keep its money with YES Bank? They may as well can go to SBI for their
bank account instead of sticking with YES Bank, which is hand held by SBI. Of
course, customers with fixed instruments have no choice but to stay stuck in
YES Bank but not for others, it’s a free world. SBI is made leader of the
Consortium, sounded fishy from the day it was announced, though a lot of days
have still not passed. Under which false pretense is RBI acting to ensure they
can get a good grip on the impending issues with the Bank and which can rip
apart the whole Banking system.
The leader of
the Consortium, who will participate in this Consortium, LIC or PSUs. RBI is
forcing private sector banks to also participate. In the times of crisis, when
the water enters the nose, this is what we do in panic. The slam dunk case of
one big bank like SBI taking over YES Bank, is scattered and to be played in
open field with the best of the private banks also have to sink their money in
protecting the Indian banking system. Why can’t RBI takes notes from Mr. Birla?
He is acting in the interest of his whole group, not for today but for
tomorrow. Ultimately if his other group companies survive one is killed, it
only benefits our nation.
On the other
hand, we have our banking regulator, whose job is to protect the banking system
is after the whole system, which it has built. Killing the YES Bank is the
wisest choice and the only choice left at the hands of the RBI with SBI merging
the YES Bank with itself. But regulator who has to manage the system is hell
bent on murdering the banking and financial system of our great nation. Kotak
Mahindra Bank is still advertising Savings Accounts rate at 7%, Kotak Mahindra
Bank, the most valued Bank in India (by PE ratio) is struggling to shore up its
deposits, after more than 15 years of operations and spent his life time,
building his name.
I don’t know, if
RBI is following the Govt. or using its independent mind. But the Governor of
the RBI is MA History, so I fail to understand if he has not read that how
depositors money was saved in previous half a dozen instances. PNB had saved a
bank back in mid 90s, which was 8% its book size. SBI should single handedly
save YES Bank as YES Bank’s book size is 8% of SBI. Though parallels cannot be
drawn right away, but still there is a lesson somewhere there for us to do it
right and better than the previous time. What is the use of Governor’s History
degree, if he cannot read history of the Organization, he is working in?
SBI’s stock is
already tanking because of this additional liability of mess. Let’s see how
much other private banking stocks tank when they are made to shell few hundreds
or thousands of Crores for bailing out the RBI, which has stepped into the
shoes, which are perhaps too big for the regulator.
Killing YES Bank
is the only survival strategy but we are working other way round, wherein we
are murdering the system (banking and financial) of India.
