YES depositors’ money safe, probe on, says FM
SBI steps in with a rescue plan; ED raids at Rana Kapoor’s house
› The Indian banking system has had several crises, thanks to the UPA government. I have reasons to put the blame on that regime
NIRMALA SITHARAMAN,
Union finance minister
› It (resolution) will be done very swiftly... Thirty days which we have given is the outer limit. You will see a very swift action from RBI to put in place a scheme to revive YES Bank
SHAKTIKANTA DAS,
RBI governor
NEW DELHI: Thousands of YES Bank customers on Friday scampered to withdraw all or part of the ₹50,000 a month they are allowed to take out of the beleaguered bank — the Reserve Bank of India (RBI) clamped the moratorium on Thursday night — even as finance minister Nirmala Sitharaman assured depositors that their money was safe.
By Friday evening, State Bank of India had stepped in with a rescue plan that, if approved, will see it buying a 49% stake in YES Bank for around ₹2,450 crore. The proposed draft reconstruction scheme says the bank’s authorised capital will be increased to ₹5,000 crore from the current ₹800 crore and that SBI will buy shares at a minimum price of ₹10 each. It also says SBI will not reduce its holding in the bank to below 26% for three years.
Later on Friday, the Enforcement Directorate raided the Mumbai residence of YES Bank founder Rana Kapoor in connection with a money laundering investigation. According to an official who asked not to be named, the raids were in connection with an investigation into the Dewan Housing Finance Corporation Ltd (DHFL), which is accused of misappropriating thousands of crores of rupees.
RBI governor Shaktikanta Das said earlier in the day that the crisis at one of India’s largest private lenders would be resolved within 30 days. “This
will be resolved very speedily and restructuring of the bank will happen,” Sitharaman said Friday evening. She promised that salaries and jobs will be assured for at least a year.
Still, the moratorium, and the fact that YES Bank’s credit and debit cards, and automated teller machines (ATMS) weren’t working on Friday caused some panic. Late on Friday, the bank said its ATMS are now functional.
On Thursday night, RBI also superseded the board of the bank. That will now be reconstituted.
There’s already been some political signalling over the crisis. Congress MP Rahul Gandhi said on Twitter: “No Yes Bank. [Prime Minister Narendra] Modi and his ideas have destroyed India’s economy.”
Finance minister Sitharaman sought to link the YES Bank crisis to alleged crony capitalism under the Congress-led United Progressive Alliance’s rule between 2004 and 2014 saying, in comments to reporters outside Parliament, that this was bound to happen if “Chacha-bhatija” (uncles and nephews) were being given loans.
Later, at her press conference on Friday evening, she said: “The Indian banking system has had several crises, thanks to the UPA government . I have reasons to put the blame on that regime.”
Still, in many ways, the crisis at YES Bank had been long foretold. The bank, especially under its promoter and former chairman Rana Kapoor, who was asked by RBI to relinquish his post in late 2018, lent money aggressively, and not always to the right companies.
Some of its loans went to Infrastructure Leasing & Financial Services (IL&FS), Dewan Housing Finance, Jet Airways, Altico Finance, CG Power, Cox & Kings India, and Café Coffee Day, all companies that have been in the news over the past 18 months for the wrong reasons. And around a fourth of its loans have been to companies in real estate, engineering, and financial services – the worst hit by the ongoing economic slowdown.
At her press conference, Sitharaman named “stressed corporations” and listed companies belonging to the Anil Ambani Group, Essel Group, Dewan Housing, IL&FS and Vodafone as the reason for the bank’s troubles.
Among the other provisions of the draft restructuring scheme is the removal of powers of the promoters (Rana Kapoor and Madhu Kapur) to recommend appointments of independent directors and the chairman and CEO.
Around ~30,000 of its loan book is below investment grade (or junk grade) corporate debt. That number is higher than its net worth of around ~25,000 crore.
Its core capital is at 8.7% of risk-weighted assets, marginally higher than RBI’S threshold of 8%, but its non-performing assets were at 7.4% of advances (of around ~300,000 crore). And it has around ~2.1 trillion of deposits which means the government will have a big hole to fill in case of a run on the bank.
Much of the crisis can be attributed to the bank’s inability to raise money, roughly $2-2.5 billion, that it needs. After Kapoor’s exit, and after he and his family sold all of their stake in the bank, the new management has held forth the promise of a white knight, but none has come forward.
RBI itself has known about the crisis for at least a year and has had a nominee on the board.
Government agencies will determine circumstances that led to the fall of the bank and fix individual responsibilities, Sitharaman said.
“RBI will act with sense of urgency... I have asked RBI to assess what is the role of various people in creating the problems and not resolving them,” she added.
The moratorium on withdrawals — RBI has said it will allow up to ~5 lakh in special cases, including for education, marriage, or medical reasons — has also spooked mutual funds (they have around ~3,300 crore of investments in YES Bank’ bonds and shares).
On Friday, shares of YES Bank closed at ~16.20, down 56%, after falling to as less as ~5.5.
Because of its linkages to the payment systems of several fintech companies, the crisis at YES Bank partially disrupted operations at companies such as Razorpay and Phonepe, adding to the confusion in the financial system.
Analysts are worried that the near-collapse of a reasonably important bank (which has been on life-support for some time), could result in contagion across the broader financial system.
The bank was being monitored since 2017 and developments relating to it were being monitored on a day-to-day basis, Sitharaman said.
The restructuring scheme of YES Bank will be fully effective within the moratorium period of 30 days, she added.
Significantly, the only losers are those who have invested in the so-called AT1 capital (or additional tier 1 capital) of the bank which, according to the scheme “will stand fully written down”.