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Yes Bank should be merged into SBI if India wants to avoid a banking tragedy

The news coming out of Yes Bank still manages to shake confidence despite the massive bad loans India’s financial system is choking on.

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Before it results in a tragedy for all of India’s banking, regulators need to step in and end the farce called Yes Bank Ltd. The latest shenanigans make it very clear that the authorities need to stop being spectators — and act.

The original cast has vanished. The co-founder who drove the country’s fifth largest private-sector bank into a ditch of bad corporate loans has sold out. Institutional shareholders are heading for the exit. Retail investors left holding more and more of the stock are waiting for lifesaving capital. The new management keeps dangling improbable funding options — ranging from an unnamed global technology firm to a Canadian businessman living in a motel — only to strike them off the list of white knights.

The only thing ticking at the bank is the clock. Common equity tier 1 may just about manage to stay above the regulatory threshold of 8% by March. But 36% of capital is tied up in bad debt that’s yet to be provided for. More loan losses lie around the corner. With 40% of deposits coming from fickle wholesale sources, solvency and liquidity risks are high.

At a time when India’s financial system is choking on hundreds of billions of dollars of bad loans, the news coming out of Yes still manages to shake confidence.On Friday, the lender announced that the head of the board’s audit committee, appointed under previous management, had quit. Following whistle-blower allegations of undisclosed past criminal cases, the bank was examining whether Uttam Prakash Agarwal was “fit and proper” to be a director.

But Agarwal, who says the missed disclosures were an omission, pulled the trigger first. In a letter, he called for a forensic audit of the fundraising process — and its communication to the board and the public — to probe if it was “false, misleading or distorted.” The stock, down 88% over the past 17 months, fell more than 5% on Friday.

Following Agarwal’s salvo, the only way Chief Executive Officer Ravneet Gill can salvage the situation and his own reputation is by quickly raising around 3% of risk-weighted assets worth of capital. That’s a bare minimum. Yet after nearly a year in the job, the ex-Deutsche Bank AG veteran has little to show for his efforts. Most recently, the board ruled out taking money from Erwin Braich, the mysterious Canadian investor. And that, as far as one can see, is the end of the road in Gill’s search for an investor who will write a check in excess of $1 billion for a lender that’s still hurtling down a rabbit hole.

An independent existence for Yes is increasingly unrealistic. There’s no safe way to shut it down without inviting system-wide panic. Depositors are already on the edge, trapped in a cooperative bank that failed. What else can be done?

I’ve previously explored the possibility of a merger with Kotak Mahindra Bank Ltd., which like Yes is also a private-sector lender. But Chairman Uday Kotak, whose good fortune has been all about saying no to loans to which Yes said yes, seems uninterested.

State Bank of India, India’s largest commercial lender by assets, may hate the idea of a forced merger. But let’s face it: No other banking balance sheet in India might be able to take over a lender with more than $31 billion in advances. More importantly, the SBI is a public-sector bank; if CEO Rajnish Kumar can be prevailed upon to swallow Yes, he can always be given some taxpayers’ funds to help with the indigestion.

Time is not on India’s side. Nominal GDP is expanding at its slowest in more than four decades. An implosion at the bank will be awful news for construction, real-estate and shadow banking, three crucial sectors starved of funding that comprise a quarter of Yes Bank’s loan book. This negative feedback loop could be more damaging to confidence than even the surprise bankruptcy of infrastructure financier IL&FS Group in September 2018, which led to an economy-wide surge in borrowing costs.

After Agarwal’s letter to the stock exchanges, the regulator and the government, none can pretend to be in the dark any longer about the state of affairs at Yes Bank. It’s time they brought the curtain down on this theater of the absurd. – Bloomberg

Also read: Yes Bank will become no bank if RBI doesn’t broker an arranged match soon


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  1. Andy, guru raghavedra shakara ban has gone bust yesterday, indusind bank and Bandhan bank are in red, why you missed out on them, plz write article on those issues

  2. What is wrong with your BS writing. You should be ashamed of putting out click bait articles & taking the stock for a ride. You just come up with absurdities & your circle-jerk congratulates you.

  3. Why these experts can’t write articles on public sectors banks whose NPAs are multiple folds when compared with these private banks and only sustaining with pumping tax payers money.why can’t criticize.and name.regulatory RBI employees who has been saying all well till late 2018 before share holders are ditched..hope writers eat food and not something else..

  4. These kind of articles by people who just pass opinions to mislead public and markets. I think guys like Andy should keep their opinion to themselves, and let SBI, or Kotak take a call and announce on their own, after consultation with YB and it’s shareholders. Unless of course, Andy himself has some vested interest and is paid for by market manipulators of which there are thousands. It takes one article with different headlines and in different publications to mislead the common investor, and creeps like Andy thrive by playing the manipulation game.

  5. All Rating agencies / Operator / Rumors and hidden Villon who want to close the Bank were sold there Integrity / There family members I.e.Mother / Father / daughters / baby boys to shorters and biggies

  6. Shameless sold out fiction writer writing on economics.If you pay enough money,they will write an article on why SBI should be privatised.

  7. Ravneet Gill has spent most of his career working in a foreign bank with limited operations in this country. In all such foreign banks, most of the decisions are taken abroad, with the local unit mainly executing the same. He also has no experience of fund raising, handling capital market issues, investors or even NPAs of this nature. He may be well intentioned, but quite clearly out of his depth in the face of tasks expected of him. I won’t be surprised if he throws in the towel soon.

  8. No tragedies. Someone who enters the pool, even if a good swimmer, knows he can develop cramps and drown. SBI’s mission in life cannot be to rescue others who have failed.

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