Yes Bank, SBI and RBI – The Unanswered Questions

Supposedly, the Reserve Bank of India (RBI) has acted swiftly in the Yes Bank issue. State Bank of India (SBI) has been roped in as the white knight. The Finance Minister has said that the depositors will be protected at all cost. RBI has said that the issue will be resolved within the outer limit of 30 days.

Seemingly, everything is fine. Just that it is not, not at all. Even the basic aspects of decisions taken by RBI, SBI and the Finance Minister are suspect and defy logic. They are trying to redeem the situation; however, the suggested cure and the ills have a severe mismatch.

How was the valuation arrived at for Yes Bank?

RBI and SBI are announcing some numbers of shares, value/share, premium and what not for SBI to acquire 49% in Yes Bank. It seems fine, right.

The only issue is Yes Bank has not declared the Q3 results. Nobody knows the NPAs. Does it have a positive net worth at all? Without knowing these basic details, how can the RBI arrive at the valuation?

It is crazy to arrive at a number of 5,000 Crores. RBI is already putting in a number that we are going to end up losing, as RBI has no idea about the fundamentals of the bank.

Who is going to run the Yes Bank?

SBI is toeing the RBI line and will pick up the 49% stake. Why not 51%? Why not make Yes Bank a subsidiary of SBI? How about a merger with SBI?

No, Rajnish Kumar has said that after due diligence (!) SBI Board has agreed for only 49% stake. In that case, who is going to run the bank? Who will own 51%? Effectively, nobody.

RBI and SBI expect to get the investors to pick up the tab of running the Yes Bank. How are they going to end up finding anyone to do that for an entity who has not published the quarterly results? Without knowing whether the bank has any underlying worth at all?

Do RBI and SBI expect others to go on a ride similar to theirs?

Corporate Governance at SBI

Yes Bank had all kind of issues – governance, compliance, shoddy decision-making and whatever. It is reaping what it has sown. It is an issue.

However, the bigger issue is the corporate governance of SBI. It is a listed entity, has a board and has to take care of all the share-holders. It is supposed to operate at an arm’s length from the Government, without any interference.

One issue pops up. And all the pretence goes for a toss. Wonder what corporate governance are we talking about at the country’s largest bank?

The investment of 2450 Cr for SBI is loose change. It will not make any difference to SBI. The question is how much such loose change can SBI afford?

Explanation by Finance Minister

The respected Finance Minister, Nirmala Sitharaman, has said that Yes Bank had exposure to the stressed corporates – Anil Ambani Group, Essel, ILFS, DHFL and Vodafone. I suppose this exposure was not overnight. And, it is not the only bank to have this exposure.

It is a pity that in 2020, our Finance Minister has to invoke Global Trust Bank (2004), United Western Bank (2006) and the likes for her defence.

It only goes on to show that she is clueless and she is supposed to be in charge of our economy.

Will she blame nationalisation of banks in 1969, if SBI’s situation starts worsening because of continual pinching of loose change by the Government?

Why so much of delay?

Urjit Patel brought Yes Bank under the radar of RBI. He forced Rana Kapoor to be ejected out of his own bank. I am sure that would he have been around, it would have been brought under PCA and the situation would have not worsened as today.

Yes Bank posted quarterly losses for two quarters, did not post Q3 results at all, did not manage to find a single investor to raise fresh capital for one full year. Rather, it released a statement that RBI did not find anything wrong their book of accounts, selective disclosure and got away with a gentle rap. To top it all, Rana Kapoor sold his entire stake.

And, of course, RBI under Shaktikanta Das was napping. No, it was busy reducing the interest rates, one way or the other, seemingly the only objective.

The future beholds

Remember the handling of ILFS, Jet Airways, PMC, DHFL and all such instances. Add Yes Bank to the heap.

Nobody is going to be jailed. No money is going to be recovered. No accountability and responsibility are going to be fixed. Has it ever happened in India?

Who’s next?

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