Government has reportedly cleared a plan to hand over the beleaguered YES Bank to public sector banks and financial institutions. State Bank of India (SBI), the largest lender in the country, has purportedly put together a consortium for this purpose.
However, YES Bank has stoutly denied having any information in this matter. "The bank has not received any such communication from the Reserve Bank of India, or any other government or regulatory authority, or from the SBI, and we are unaware of any such decision," the private lender said in a filing to the stock exchanges. "We are not in a position to comment on such news items."
Meanwhile, SBI's response has kept everybody guessing. "We will abide by the timelines of SEBI in disclosing the developments, if any, in the matter to stock exchanges," stated the public sector bank.
YES Bank is in dire need of capital because of deterioration in its asset quality, NPA provisioning, and losses in its books.
At the end of second quarter of FY20, its core capital ratio stood at 8.7 per cent, as against RBI-mandated 8 per cent. This could plunge if NPAs rise further. The gross NPAs are already at 7.4 per cent in September 2019. The bank need more than Rs 10,000 crore as capital for growth. In fact, YES Bank's entire market capitalisation of valuation has plunged to below Rs 10,000 crore.
YES Bank CEO Ravneet Gill had said the capital would be in place before December last year. Gill, who had initially said the capital would be raised in various tranches, later communicated that the bank is exploring the possibility of raising it in one go. In November, the bank announced that it would raise $2 billion in a share sale. So far, the bank hasn't made any progress to raise fresh capital.
The speculation over merger are now heating up as new slippages would impact the bank.
The last merger where a public sector bank (PSB) was brought in to save a private bank was in early 2000 decade when the Global Trust Bank (GTB) collapsed because of its exposure to stock market. After the Ketan Parekh scam, the bank lost substantial amount of money. In 2004, the RBI solemnised the merger of GTB with Oriental Bank of Commerce (OBC). Later in 2010, the RBI encouraged another merger between Bank of Rajasthan and ICICI Bank. The RBI was uncomfortable with the promoter of Bank of Rajasthan, and inspection by regulators unearthed various violations.
Currently, any PSB is not in a position to shoulder a merger because of the consolidation exercise which is already underway. The current move is hinting at a possibility of several lenders and financial institutions pumping in money to save a bank. But it is not easy, as seen in the recent acquisition of IDBI Bank by LIC. The insurance giant had to pump in huge money to save IDBI Bank, whose gross NPAs spiraled to over 25-26 per cent. Things are now stabilising at IDBI Bank, which would soon shed the tag of weak bank amd come out of the RBI's prompt corrective action (PCA) framework.
If capital situation at YES Bank deteriorates, the RBI has the option to take it into its fold under PCA. The framework involves monitoring the bank, put restrictions on risky lending, and nurse it back to health. Clearly, the government and the RBI don't want any bank to fail as there would be a chain reaction. Any failure of a bank generally leads to loss of trust in the banking system. In fact, it can impact the entire private banking sector, which now has over 30 per cent market share in deposits and advances.