The imposition of a withdrawal cap on YES Bank’s depositors and the bank’s dramatic takeover by a Reserve Bank of India-appointed administrator on March 5 meant the bank’s liquidity situation was fragile.
Still, Prashant Kumar, the newly-appointed administrator is clear that the bank is optimistic that the usual banking services will resume shortly, and that depositors could even expect to start full withdrawals as early as end of this week.
Currently, the government has imposed a moratorium and YES Bank depositors cannot withdraw more than Rs 50,000 till April 3.
“I would like to assure all depositors: there is absolutely no need to worry or to panic. Your deposits are absolutely safe. We are expecting all problems to be sorted out and the moratorium could be lifted as early as this week,” he said.
“For us, the first priority is the customers and how to provide the seamless business to our customers. All of us are working towards making the entire banking services available to our customers as soon as possible,” Kumar added.
The YES Bank’s administrator added that the bank will declare its results on March 14.
On the bank’s liquidity situation, Kumar said YES Bank is talks with a number of investors, and that fund raising should not be a problem now that SBI has decided to invest in the bank.
“When SBI is there, getting those investors would not be an issue at all. SBI’s name itself gives a lot of confidence to the investor community. In a couple of days all those things would come out in public domain and as per the requirement, we would disclose those details,” said Kumar.
He added that there was no need to prepare a contingency plan should YES Bank fail to lift the moratorium on April 3.
“The contingency plan would come when you are not sure about plan A. We are more than 100 percent confident about the plan A,” he said.
Edited excerpts of the interview:
Q: What is going to be the game plan as you take charge of Yes Bank over the next 27 days of the moratorium that are now remaining?
A: I think for us the first priority is the customer and how to provide a seamless business to our customers. Like you must have seen, on the very first day all our ATMs were up for the customers. Since Saturday evening, even the ATMs of other banks are available to our customers for withdrawing the cash. In our branches, our staff is reaching out to customers, they are dealing with their issues.
I would also like to take this opportunity to thank all our customers who have really cooperated with us and who have shown lot of patience. I think this is the faith in the brand of Yes Bank. I would also like to thank all my staff members across the branches who are dealing with the customers, providing them those services.
So, I think that in the coming days -- and yes 27 days would be the outer limit but -- all of us are working towards making the entire banking services available to our customers as soon as possible.
Q: But at the root of the problem is capital. That is what Yes Bank has been trying to raise almost for one and a half years now. Now, State Bank of India (SBI) has shown willingness to pick up 49 percent, but the initial investment is only Rs 2,450 crore. What will this take care of and what is the overall requirement, it is far short of what analysts are estimating at almost Rs 20,000 crore?
A: We are going to declare our results on March 14 and then the clarity would come. SBI has shown interest, about 49 percent, and definitely there would be more requirements. So we are in talks with a large number of investors and SBI is also doing that part. So we are quite hopeful that in a couple of days the issue about the capital requirement would be taken care of, but the whole understanding and the clarity would come in the next couple of days along with our declaration of the December results.
Q: You have been seeing the books of Yes Bank now that you have taken charge as the administrator. Could you give us a ballpark figure; are analysts right in estimating Rs 20,000 crore as the requirement?
A: As I shared with you, we are declaring results on March 14, I think it is not proper on my part to say anything just before the declaration of results.
Q: You said in the next couple of days is when some of these investors may be tied up. Today is the last day to submit comments to Reserve Bank of India (RBI) on that draft restructuring plan. What are you expecting?
A: If you see the draft plan, there are not many issues where we need to give different types of comments. The plan is as per the requirement of the bank and I think once the comments are given by today evening by all the stakeholders, then RBI would come out with a final plan very soon.
Q: Before SBI came into the picture, the previous management was holding talks with Tilden, with Capital, with JC Flowers & Co and similar other PE players. For some reason or the other, those deals have not materialised. Are you confident that some of these global private equity players, would they come back now that SBI is in the picture?
A: Absolutely. I think when SBI is there, getting those investors would not be an issue at all. SBI’s name itself gives a lot of confidence to the investor community.
Q: Could you share with us have talks materialised with any one or more of the players?
A: I think we need to keep some surprises for all of you. So, let us wait for that. In a couple of days all those things would come out in the public domain and as per the requirement, we would disclose.
Q: Going forward is it a possibility that LIC could also be a participant? Have those conversations happened at all, at your end, at SBI’s end?
A: That is exactly what I am saying. If you see the draft resolution plan, it was whereby SBI has shown the willingness or interest in investing up to 49 percent. If we are able to find other investors also, I think that would be really good for Yes Bank. But let us see how many people come.
Q: As the man helming Yes Bank right now, you also have to prepare a contingency plan. What would be plan B if the bank is not able to raise enough funds even with SBI on board? Is a merger with SBI a possibility?
A: All the contingency plans would come when you are not sure about plan A and we are more than 100 percent confident about plan A. Within a couple of days and definitely before the moratorium period on April 3, we would be able to stabilise the things.
Q: You are ruling out a merger with SBI altogether, that is completely off the table.
A: It has been made very clear in the draft plan also and by the SBI also. There is absolutely no question of a merger. SBI is putting equity and we are expecting other investors to also come on board and YES Bank would be running as an independent bank.
Q: SBI’s Rajnish Kumar clarified that there will be no capital support that will be sought from the government but as far as Reserve Bank of India (RBI) is concerned, is it possible that a special liquidity window is created to help ease some of the crisis at the bank?
A: No, these are two different things. Let us not confuse liquidity with equity. What chairman of SBI has clarified is that SBI would not be asking for any capital support from the government and SBI itself would be able to provide the necessary capital.
As far as liquidity is concerned, I think I would like to thank RBI who is providing the required support in terms of liquidity as well as SBI. So there is absolutely no issue from the liquidity side.
Q: Is it possible that RBI does step in to provide this support to YES Bank? There were reports of about Rs 8,000-10,000 crore of capital coming in from that window.
A: Whatever would be our liquidity requirement, that would be fulfilled.
Q: Has RBI confirmed that it would be able to step in?
A: Once the final resolution plan comes, we would also be coming out with our liquidity requirement and we are having assurance from everybody.
Q: So there is an assurance from the RBI as well.
A: Yes, absolutely.
Q: The second set of stakeholders in this entire scheme of things – that seems to be very unhappy with the draft restructuring plan - is the bondholders. As per the draft plan, the AT1 bondholders with outstanding of about Rs 8,000 crore that will be completely written down to zero. What do you believe, do they have any legal grounds to stand on because they would be looking to challenge this?
A: If we see the Basel regulation, it is very clear that additional tier-I bonds are the quasi-equity instruments and technically, it can be written off in such cases. So I don’t think there is any legal ground, which is available to all the bondholders.
If I recollect my days as CFO in SBI, whenever we were raising the AT1 bonds, AT1 bonds always commands a premium of more than 100 basis points (bps) over the tier-II bonds and this premium is only because of this particular characteristic of these instruments.
Q: The assumption was that as per the terms and conditions under which these bonds were issued by Yes Bank, if core equity tier I (CET I) ratio was below the minimum requirement of 5.50 percent that is the scenario in which the Reserve Bank of India could have written down so is that the case now? Is CET I below 5.50 percent for Yes Bank?
A: I am not commenting on CET part, but the only thing is if the situation warrants having a moratorium for a bank, then legally it is possible.
Q: Speaking of that moratorium, if a stable name like State Bank of India was in the fray, if SBI was willing to pick up 49 percent stake in Yes Bank, was is really required to place Yes Bank under moratorium and create this panic specially among the depositors? Could it be have been handled better?
A: This debate you can always have, what could be the solution, but we need to follow certain processes. Processes laid down by the banking regulation act and the other acts. So whatever is happening we need to follow the banking regulation act.
Q: Going back to those bondholders questions you said at State Bank of India you had recently raised these, we have seen the fallout already, IndusInd Bank one of the largest private sector banks that have plans to raise this tier I capital has now deferred its plans because of the flux in the market. You think banks are now going to be wary or more importantly investors are going to think twice before investing in these kinds of bonds?
A: Investors were always taking the premium on these bonds. So maybe like you are always taking a premium by understanding the characteristics of a particular instrument. But it in certain cases - if they are not liked to face this situation, so there could be immediate reaction, but I think the people would understand that this is a one-off case, it cannot happen with all the institutions. In certain complicated situations and difficult situations depending on the characteristics of an instrument, the concerned parties have to take certain haircuts.
Q: As part of the restructuring plan Reserve Bank of India says that an entirely new board would be constituted, are we to assume that the current management including the CEO Mr. Ravneet Gill will now not be returning to Yes Bank?
A: I think that is a call which the new board is going to take.
Q: Even your former bank State Bank of India they would be allowed to have two nominees on the board, given that you have been the chosen one do we assume you will continue as one of the board members if not the MD and CEO of the reconstituted bank for the next one year?
A: We need to wait for some days when the notification would come.
Q: Broadly what is the understanding at his point of time, this is a scenario that we are looking at only 27 days from now, it is not in the far future and it is a very near possibility?
A: When we are talking about 27 days - at the same time we need to appreciate that moratorium was imposed on the 5th evening and within 24 hours, Reserve Bank of India came out with the draft resolution plan, it happened within 24 hours. So we should not see like the remaining 27 days or something, when I think everybody is acting so fast. So let us wait for a couple of days and the whole clarity would come.
Q: One of the people acting - I don’t know fast, but it is also the investigating agencies not specifically commenting on an individual, but do you think it may have any sort of impact on the capital raising plans for Yes Bank?
A: I don’t think so.
Q: If you could elaborate because we have seen investors worrying about how deep is the rot - they don’t know at this point of time? Could there be more frauds than have been disclosed, could there be more skeletons in the closet, so is there any concern at all at this point of time?
A: We are already talking to the investors. Investors are aware of what is happening within the bank and we would be definitely able to give more clarity on the 14th.
Q: Speaking to the depositors, if you will, they have also been some unfounded conversations around the market cap of Yes Bank eroding and therefore that Rs 2 lakh crore of deposits the bank may not be able to honour. Could you clarify on that front, is there any sort of correlation between the market cap of Yes Bank and the depositors' money with the bank?
A: I have spent more than 36 years in the State Bank of India and the first time, I am hearing a correlation between the market cap and the risk on the deposit side. I would like to clarify there is absolutely no connection between the two. The stability of any bank is always seen from the capital adequacy which takes care of any risk. Market cap is a function of so many other factors and it is mostly on what are the future potentials and this is seen from the stock market. For me, I never have been able to understand the stock market, but definitely the market cap has no relation with the stability of the bank.
Q: Also to potential investors perhaps listening into this interview there have been fears that the asset quality that has been disclosed, is almost maybe a 5th or the 6th of the actual size of the problem, you have been able to see the books. Without getting into the numbers, I know you said the results have not been declared could you give some sort of assurance that perhaps because of the RBI orders and the disclosures that the banks have been making there is no way into fears or is there?
A: Those assurances we have given, we have been very transparent with the investors. This bank was talking to investors and they have disclosed all this information. So I think the concerned investors are well aware of what is the position of the bank. But at the same time I would like to give this assurance to all the depositors there is absolutely no need to worry or to be panic, your deposits are absolutely safe and we are expecting very soon maybe it could be as early as the end of the current week where all these problems would be sorted out and the normal business would continue in the Yes Bank.
Q: Are you saying that the moratorium could be lifted before the end of that 30 day period?
A: Yes, absolutely, all of us are working towards that. It could be as early as that.
Q: By the end of this week should we expect?
A: It could be as early as that. Only thing is what we are saying all of us are working towards that, we need to see when it comes.
Q: Could you give us a sense of the turnaround time? I know you are saying moratorium will be lifted by the end of the week, in the next couple of weeks you will have investors on board, but the turnaround of the bank - how long could the process be?
A: There were problems in the bank, there has been a dent on the brand also because of the incident definitely it will take some time to rebuild that. But I am very confident that with the type of support which we are getting from our customers and with the very hard work put in by our staff members we would be able to bounce back very soon. Maybe in the coming financial year, maybe in the first quarter and the second quarter, itself the bank would be in much better position. We are working towards that very soon.