While SBI's faith is good, Yes Bank rescue needs an RBI push - Mint.com
24-Jan-2020 08:30:35 AM
New Delhi
New Delhi, Jan. 23 -- State Bank of India has been involved in some of India's bank rescue missions before. So when SBI's chairman Rajnish Kumar said that Yes Bank won't be allowed to fail, investors took this as a sign. After all, the troubled Yes Bank has not been able to raise capital despite several efforts.
It didn't look like a stretch for the market to believe that the ball would finally land at Kumar's court. Surely, the state backed behemoth can easily swallow a battered private bank.
But has it really come down to the last resort of a merger for Yes Bank?
As of September, the lender's Common equity Tier-I capital adequacy ratio was 8.7%, very close to the regulatory minimum of 8%.
Analysts are expecting a fast erosion on capital given the surge in stressed assets on the bank's books. Indeed, provisions have drained Yes Bank's capital in the past and will continue to do so in the future. A slowing economy is not helping either.
Despite claims of marquee investors and binding agreements, Yes Bank has not been able to raise money over the last six months. One adventure to raise capital led Yes Bank to an unknown Canadian businessman who was said to have agreed to infuse $1.2 billion into the bank. After analysts cried foul over due diligence of the investor, Yes Bank's board ended up not taking the offer.
Investors are flummoxed by the inability of the bank to raise money. To be fair, a bit of blame also lies on the regulator. Some analysts pointed out that the RBI has not been proactive. "It needs a marquee investor. When a bank has to turnaround, it needs one single investor and leader. The regulator has to take this seriously and allow a large investor to step in," said a banking consultant.
Meanwhile, Yes Bank's corporate loan book has shrunk, stress has increased which forced the bank to jack up provisions. The bank reported a net loss for the September quarter.
Time is running out and many institutional investors seem to have exited the bank. Several exits from the board are also making investors jittery. For the remaining investors, the only hope is of a rescuer and SBI Kumar's comments were the last straw to grasp on.
Kumar's comments by no means indicate that SBI would step in to save Yes Bank from a capital abyss it is poised to fall into. The best outcome for Yes Bank is to woo a big investor that would be liked by the regulator as well. Perhaps, the LIC (Life Insurance Corporation of India) option may be considered as well, although expecting the life insurer to rescue another bank after IDBI Bank Ltd may be a stretch. If a large investor doesn't step in, taking refuge in a large balance sheet such as SBI is the only option. Published by HT Digital Content Services with permission from MINT. For any query with respect to this article or any other content requirement, please contact Editor at contentservices@htlive.com