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Yes Bank has No Money

Everyone and their Uncle knew that Yes Bank was perched atop a cliff, ready to fall. When you are growing 6x the industry average, it’s a red flag if a Rana Kapoor is at the helm. The irony is that on the board was an RBI representative and a former president of the ICAI.

Did the regulator sleep? In fact, investigations into the bank should have started when the RBI did not renew Rana Kapoor’s tenure as CEO. Some say, the RBI should have acted much earlier when the bank was growing its loan book at over 30-40 per cent. Well, we can always be wiser after the event.

Rana Kapoor was to the industry, what the RBI is to the banking sector, the lender of last resort. Yes Bank never said ‘No’ to any suitor, even if other banking brides had rejected the groom. Kapoor would lend big, charge a hefty upfront fee of 2-3 per cent and credit it to the P&L account. It immediately fattened the bottom line. And the rate of interest was about 16 per cent compared to the 13 per cent others charged.

In the early 2000s, the news was Yes Bank would operate on cyberspace. It did not pan out that way. Rana Kapoor, the former ANZ banker, had founded Yes Bank along with the Late Ashok Kapur, known in the banking circle, for his conservatism. Kapur was killed in the 26/11 attack and after that, Rana was an unbridled horse. Reportedly, Rana personally oversaw every lending, surely not a good sign for a large bank.

The chicken came home to roost

The trouble started when the RBI used technology to play Peeping Tom on the non-performing assets (NPA). Earlier, banks used to sell and buy back an account to avoid it becoming a NPA. Yes Bank said it had less than 1 per cent of bad loans when its corporate exposure was a high 65 per cent. That itself should have been a red rag. With new regulations kicking in, banks had to submit quarterly reports on all borrowers with an exposure of Rs 50 million. The chicken came home to roost.

The scrutiny led to loan divergences. Meaning, the RBI and the Bank disagreed on the quantum of a bad loan. In FY17, this number was Rs 63.55 billion. A report by Jefferies showed that the Bank’s exposure to stressed accounts was Rs 102 billion, second only to SBI’s Rs 150 billion. And the total exposure to ADAG was a massive Rs 130 billion. A cavalcade of corporate India’s fallen heroes: Anil Ambani (ADAG), Naresh Goyal (Jet), Subhash Chandra (Essel), Peter Kerkar (Cox and Kings), Wadhawan (DHFL) and Sameer Gehlaut (Indiabulls) are likely to be called for questioning in connection with the Yes Bank probe.

Why sbi bails out a corrupt banker?

My concern is in the State Bank stepping in to bail out Yes Bank. I have no problem with a Satyam-style bailout. But a government mandating a nationalised bank to bail out a private sector bank in this fashion is not on. I didn’t place my money with SBI for it to play Knight in shining armour for a greedy and corrupt banker. I do agree that public deposits are at stake, but you cannot ask others to step in, without their making a judgment call.

We seem to be making a rash of such bailouts. The government recapitalised PNB, LIC infused fresh money into IDBI Bank and now a slew of banks are pumping into Yes Bank. And they are acting under the instruction of the government. SBI is pumping in money at Rs 10 per share. The market price has already gone up to 60 in a matter of days, but that’s not the point.

For now, the news is that the bank will be managed and run as an independent private sector bank.

But I would any day prefer a Satyam-type sell-out.

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