Historically, 36 private banks have been put under moratorium in public interest since 1969. In the past, the main reason behind the nationalisation of private banks had been "mismanagement", and that makes for a strong case for YES Bank's takeover by a public sector bank.
What will happen to YES Bank if it fails to raise funds? Will it be nationalised? There are several such instances in the past when failed private sector scheduled commercial banks had been bailed out by state-run banks. Historically, 36 private banks have been put under moratorium in public interest since 1969. In the past, the main reason behind the nationalisation of private banks had been "mismanagement". In YES Bank's case too, brokerages have pointed out many loopholes in the process of fundraising . The bank is looking to raise $2 billion from external investors to meet its capital requirement.
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Listed in 2005, YES Bank remained a stable performing retail bank until it started issuing big cheques to debt-laden and high-risk exposure companies such as ADAG (Finance), DHFL, Cox & Kings, McLeod Russel to name a few. Soon enough, it started piling up bad loans, and now even struggling to raise funds. Macquarie in its recent report said, “In our view, if the bank is unable to raise money in the next 6 months, it poses a grave danger to the financial system.”
The brokerage further explained that when a bank collapses, the clearing system comes to a halt and hence the contagion impact of a bank collapse is far higher than that of the collapse of NBFCs. There are several such instances in the past when private sector scheduled commercial banks have failed and have been bailed out by state-owned banks.
Two prominent examples are the acquisition of Global Trust Bank and the United Western Bank. Both of these private banks were bailed out by state-owned banks and forced into a merger.
In the case of YES Bank, former RBI Deputy Governor is already on-board and is closely monitoring the bank. If it fails to repair its books, there are chances that a PSB will absorb the bank via merger, it said.
"Coming back to the recent bank’s fundraising plans, its board is still inconclusive on signing a deal with any strategic investor." According to Macquarie, the bank will require at least $2.5-3 billion over the next 12-18 months even after factoring in operating profits for the next 6 quarters. Also, YES Bank’s networth is about Rs 250 billion, below investment grade book (BB and below) is Rs 300 billion, and BBB book is about Rs 500 billion.
The brokerage has also raised a question over the YES Bank board's decision to announce a binding offer from Canadian investor Erwin Singh Braich whose background is mysterious.
First Published: Dec 12, 2019 2:32 PM IST