VK Vijayakumar
Yes Bank’s restructuring plan involving the capital infusion of Rs 7,250 crore by SBI, Rs 1,000 crore, each, by HDFC Bank and ICICI Bank, Rs 600 crore by Axis Bank and Rs 500 crore by Kotak Bank has come as a big relief.
Many more institutions have shown willingness to invest. The restructuring plan involving the country’s leading banks will go a long way in instilling confidence in the embattled Yes bank. However, there is a risk that depositors might flee once the caps on withdrawals are lifted. Bulk depositors should be persuaded to stay.
The restructuring of Yes Bank has to be seen in the light of failures of the NBFCs, IL&FS and DHFL and the crisis in banks like PMC Bank and PNB. It is also important to recognise the fact that during the last eight years, the government has recapitalised India’s PSU banks to the tune of Rs 3.5 lakh crore at the taxpayers’ expense. Aren’t we paying too high a price for financial failures? Who all are responsible? What lessons can we learn? These are the relevant questions.
The fact that the health of the financial system is crucial for economic growth and development needs no emphasis. Financial history is filled with examples of failures of financial institutions wreaking havoc in the real economy. That's why we have institutions for regulation and supervision, credit rating, auditing and many norms and guidelines for healthy practices. India has adopted most of these best practices. In spite of all these, why did Yes Bank fail?
What led to the crisis?
There have been serious lapses at many levels - in regulation and supervision, in auditing and in the functioning of the board. It is surprising that the abnormally high credit growth of Yes Bank relative to the growth of the industry, and the increasingly high proportion of fee income, particularly from new corporate borrowers, had escaped the attention of regulators for long. If a bank with a capital adequacy of 16.5 percent and gross NPAs of only 3.22 percent as late as March 2019, fail within a year, questions have to be raised on the quality of auditing and supervision. The Q3 FY20 loss of 18,564.2 crore, against a profit of Rs 1,000 crore during the corresponding period last year, is a reflection of failures at all levels.
Guilty should not go scot-free
Unfortunately, our experience is that financial manipulators go scot-free. This should change. A lapse in the Yes Bank episode is that Rana Kapoor could sell his stake in the bank even after he was shown the door. Many murky stories involving the promoters and the new breed of corporate borrowers are coming to light. All sorts of nexus have to be enquired and the guilty punished expeditiously. Regulators, auditors, independent directors and rating agencies have to be pro-active to pre-empt crisis. The stability of the financial system demands eternal vigilance.
(The author is Chief Investment Strategist at Geojit Financial Services)
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