It is an industry known for obsessing with the minutest of details. And bankers are mocked as people who will give you a loan only if you can prove that you don’t need the money. So the decision by the State Bank of India along with seven other banks to come to the aid of a fallen rival has surprised many.
For the banks, which have invested money in Yes Bank under the bailout plan, the feeling is a mix of hope, resentment, and apprehension.
Hope that there will be some upside to their investment, which many bankers feel has been made an “attractive” price of Rs 10 per share.
Resentment that the most profitable and a well-capitalised big boy of the banking system has stayed away from this community rescue act.
And apprehension that things could get really ugly if there are more skeletons in the closet, or if depositors rush to take their money out when they get the chance.
The gamble, if one may call it so, has been made on the assumption that come 6 pm on Wednesday when the moratorium lifts, the customers will not rush to withdraw what’s left of their deposits.
Yes Bank saw a flight of deposits during the third quarter and beyond, causing the deposit base to shrink by nearly Rs 72,000 crore to 1.37 lakh crore as of March 5.
“If we don’t see a rush to withdraw on Wednesday, hopefully the bank will stabilise with a new management. The Rs 72,000 crore withdrawn was largely the bulk deposits that have moved, retail depositors have stayed on we think,” said the head of one of the banks investing in Yes Bank under the reconstruction scheme. Another investor bank echoed the reasoning.
The question on everyone’s mind is how so many private financial institutions suddenly decide to chip in the rescue plan in almost in a coordinated fashion, and if it was a diktat from the top.
“It was a commercial decision, price offered was very juicy. At the end of the day, it was in everyone’s interest,” a senior official at one of the participating banks told CNBC-TV18.
A run on Yes Bank would have quickly spread to other parts of the banking system, unleashing chaos that would have then been difficult for the RBI or even the government to control.
And yet, there is unease within the consortium on how the crisis was handled by the authorities.
“Sometimes, banks have to bail out regulators instead of the other way round,” said the senior executive at one of the banks.
“Had the same concessions been given earlier, many non-bank investors would have been eager to invest, and a solution could have been arrived at without a moratorium having to be imposed,” the executive added.
HDFC Bank not being part of the consortium has rankled some of the participating banks.
“One must ask why some banks, who are the largest in the system, have shied away, when even smaller ones likes of IDFC First Bank have come forward,” said a senior executive of a private bank, hinting at HDFC Bank, whose parent -HDFC Limited-has proposed an investment of Rs 1,000 crore.
At midnight Saturday, Yes Bank announced its third-quarter earnings, which revealed a sharp jump in provisions for bad loans. And the investor banks are hoping that the coronavirus-triggered disruption does not add to the stress on Yes Bank’s books.
Surprisingly, most of the banks CNBC-TV18 spoke to, said that little or no due diligence was done before the investment decision was made, all in a matter of three to four days.
“No one has seen the books, this is all guesswork,” said one of the senior executives, adding, “…we are hoping State Bank of India has done its homework and the bet will pay off.”
When the investment proposals were being ratified by the boards of these eight financial institutions, Yes Bank’s third-quarter numbers were yet to be announced.
The banks had a mixed response to the results finally disclosed by Yes Bank late night on Saturday. For some, the worst fears were confirmed but at least it was an assurance that their assessment was accurate. For others, it was a relief that the gross NPA figure of around Rs 42,000 crore was below the Rs 60,000-65,000 crore they were fearing.