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Yes Bank’s Troubles Increase as RBI Ex-Deputy Director is Appointed to the Board

Sourav by Sourav
May 17, 2019
in Industries, News
Reading Time: 3 mins read
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Yes Bank- Next Big Brand

Yes Bank recently invoked their pledged shares in Cox & Kings

Yes Bank, India’s 10th largest bank in terms of market value, has been running into trouble, with several issues popping up one after the other. However, the problems have never looked extremely serious until now. The Reserve Bank of India is known to be averse to letting its officials sitting on the boards of non-state lenders. An official being a part of the boards of these private setups often leads to conflict arguments arising, something that the Indian banking regulator is keen to avoid. So, if the RBI itself has to step in and appoint its ex-deputy director to the board of a private lender, then the signs aren’t very good for the bank. RBI taking a step of this magnitude may very well mean that Yes Bank is in deeper trouble than investors believe, and getting the bank out these troubles might be harder than it seemed earlier.

The first signs of problems appeared two years back when after being forced by the RBI, Yes Bank revealed that the non-performing loans, which were reported to be $ 113 million in the company’s official audits, were, in fact, $ 630 million more. The same divergence was investigated last year as well, with the difference found to over $ 1 billion! Taking cognizance of the situation, the RBI refused to approve another 3-year term as the CEO for Yes Bank co-founder Rana Kapoor. Kapoor was recently replaced by Ravneet Gill former CEO of Deutsche Bank AG India, who has made it his priority to ‘kitchen-sink’ these problem loans.

March quarter this year was the first time ever that Yes Bank posted losses, as the new CEO Gill okayed a $ 300 million hit in order to cover for the loans that could turn bad further along the road. However, all of this still doesn’t fully explain the RBI’s decision to get involved at this point. There is new management in place which is committed to cleaning the house, while the non-performing asset ratio is at 3.2%, considerably less than SBI’s 7.5%, which is the largest lender in the country by assets.

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Source – businesstoday

One reason for this intervention could be Yes Bank’s connections with real-estate and financial firms, which are the two sectors facing the biggest drop in funding in India. This exposure works out to be one-sixth of the loan book, as revealed by the bank. If there is a huge sale of debt securities by the bank, then funding costs for the borrowers, mainly the shadow-lending industry, go up. If this is allowed to continue, the country could be catastrophic, with the effects coming out in the open just as the new government takes charge of the country. This is something that the RBI cannot allow to happen and that must have been the reason behind stepping in at this time.

This is not the first time that RBI has used its special powers to appoint directors to the boards of non-state run lenders. Dhanlaxmi Bank and Lakshmi Vilas Bank are two other such examples of the national regulator appointing its officials to the board. In the case of Lakshmi Vilas, India Bulls Housing Finance Ltd. intends to merge with the bank if RBI allows the shadow bank to become more of a deposit-taking establishment. One can assume that Yes Bank would also be subject to interest from similar special situation investors.

It remains to be seen how much of an improvement the new CEO can make to Yes Bank’s fortunes. From Anil Ambani to Zee Entertainment Enterprises Ltd. the bank faces a multitude of problems, with the exposure on Ambani’s dwindling empire being $ 1.85 billion, which half of the bank’s common equity! When it comes to Zee Entertainment, Yes Bank’s exposure is $ 470 million. In a situation like this, if things don’t get better fast, a long line of suitors for the bank is not really feasible. The best way out might be an arrangement decided by the RBI.

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Sourav

Sourav

Excellent story-teller, with a background in SEO and Digital Marketing. Likes to write and give form to opinion and incidents.

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