Kill or Murder (YES Bank)

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.

BUDGET - 2010

Budget definitely takes much of the news and newspaper section leaving little room for abused, drugged, raped, abducted and murdered Indians. Such is the phenomena or the euphoria created around the Budget. Over the past few years, Budget just became an annual exercise esp. in this era of coalition politics, when the Govts’ purposely kept the important decisions outside the preview of the Budget and made it merely a Profit & Loss Statement than an Annual Report.

The only Budget that financial pundits remember or would like to think are 1991 Manmohan Singh Budget, 1998 PC Budget and of course, Yashwant Sinha from BJP had been the cynosure for drawing flak from all the six corners of India. The lackluster annual exercise by Pranabda during last year, the analysts and experts had not built any hopes. Will this Budget be remembered for the staged walk out by the Opposition from Lok Sabha, perhaps first or something else? I really liked the fiery style of Sushma Swaraj and her command over Hindi and the way she made her points. As the saying goes, success honours you and destroys you at the same time. She is currently redressing to the later part of the saying. The Opposition walked over one rupee rise in oil prices. It will add to the woes of the inflationary pressures. But then market expected to rise by few rupees, so it was still a breather. Moreover the Govt. should always be thinking in favour of OMCs (Oil Marketing Companies).

Yes the food inflation and food security is one of the biggest concerns for India of today and will remain tomorrow and not the growth or the GDP. 60% of our economy or India is dependent on agriculture, yet we are not in a pitiable state either. If your battered vehicle cannot give improved mileage, then we reduce the amount of petrol which goes into running the engine. But our Govt. has tried to undertake something better. They have increased the tax slabs for individuals, which in other words, increases the real income in our hands.

But this Budget is perhaps one amongst the best with the caveats, Coalition Govt. and the Financial Crisis. The Govt. has been juggling with the lower demand of products and services, lower exports, rising inflation, rising fiscal deficit and to top it all, they had slashed tax rates, duties, cess’ applicable on sundry and all and sacrificing income, still they are able to lower the fiscal deficit and feed the poor developed or perhaps poorly managed schemes for the poor. I liked the renewed focus on Agriculture to bring something positive in this space. Hope they are able to pull this off. Because in India, all the good things are virtue of our politicians and all the bad things are blamed on the monsoon.

The FM made a point throughout his Budget speech to usher in a process of inclusive growth. The inclusive growth can be achieved by bringing the economy back on growth path with GDP of 9 % per annum and to take the government back on the path of fiscal consolidation.

Private players will be issued Bank Licenses. In 2002, RBI cleared few licenses and now after a long lull they will be issuing licenses. Reliance (non-reliable) Bank, Singh (Religare) Bank, Birla Bank, Modi Bank, India (IndiaBulls) Bank some of the leading financial services/NBFC conglomerates will be vouching for that slot. As a consumer, it will become more harassing to entertain few more useless marketing calls from few more useless service providers. At the same time, I hope something better from these new-age industrialized houses to better the customer experience.

Direct Tax Code, General Sales Tax Regime may become a reality for FY 2011-12.

Markets cheered and roared for Pranabda’s efforts which touched an intra-day high of 350-400 points (2 %) at the conclusion of Budget speech and still managed to close at 175 points (1 %) in positive.

With the hope to leapfrog the growth rate of Indian economy in double digits, Pranabda concluded the Budget 2010-11.