The hand wringing begins. As people get irate over the risk of their savings, there are newspaper reports that the government will step in and say that Yes Bank will merge with the State Bank of India. There is an interesting interdependency here between Yes Bank and other India-based Banks such as State Bank of India, HDFC Bank etc. Most of the Mutual Funds floated by these banks have substantial amounts of stock in Yes Bank. As Yes Bank’s stock fell, those who had huge exposure had to step in. Some of the biggest exposure is in SBI – Equity Hybrid Fund and SBI – ETF Nifty 50 totaling over 100,000 crores. No wonder that the Reserve Bank of India is now doing a Shotgun wedding between SBI and Yes Bank. Below shows the exposure of the Mutual Funds that are being handled by various entities. FT in the graph refers to Franklin Templeton.
How did Yes Bank fail?
In one word, exposure to some very big entities. Reliance Infrastructure (RIL) recently disclosed that of all its facilities from Banks/FIs of Rs 3871cr, Yes Bank loan was Rs 3627cr which is almost 95% (see the tweet below). Anil Ambani’s RIL is practically insolvent, his elder brother’s support notwithstanding. What is surprising is that the present Government knew the systemic risks of Yes Bank yet chose to do nothing about it. Why didn’t the mandarins in the Ministry of Finance or the RBI flag this? Is it isolated to just one bank or is this a systemic phenomenon? From what has been observed thus far, such things do not occur in isolation and other banks could fail too, in the days and weeks to come. The following tweet explains it all:
Rs 3871cr outstanding from all Banks & FIs out of which Rs 3627cr from 1 bank viz almost 95%. Questions arise on Risk & Exposure limits. And this was infrastructure lending with fundamental asset-liability mismatch. What kind of banking was happening here? https://t.co/jF9fh2aOOk
— Sanjay Jain (@sanjayjain2012) March 4, 2020
What about accountability and action against private bankers and promoters?
The core of the problem
At the core of the problem is bad or maybe even corrupt/ quid pro quo lending (as seen from the tweet above). Why hasn’t RBI ordered an investigation along with the Enforcement Directorate (ED), Income Tax, and the Central Bureau of Investigation (CBI) on dubious lending by the erstwhile Promoter and the relevant Board/ Committee of Yes Bank? Have the people responsible for this reckless lending and questionable practices brought to book or even investigated for questionable decision and mala-fide if any? Shouldn’t ED, RBI and Fin Min order an investigation and lodge First Information Report (FIR)s? In case they find a criminal breach of trust or any such violation of prudent lending norms or trade-off in decisions at the Bank that has led to this situation. PMO and FinMin need to answer and act without delay before the concerned people “scoot” from India or continue with business as usual and have the last laugh! “Na khau gaa na Khane doonga” (time to put it to test and real use).
Need a specialist for FM
That begs the question, who saw this coming, as early as 2015 and warned the Prime Minister? Who is today trying to work a way out for India to grow at over 10% and still have a way to make banks whole while maintaining a healthy Dollar-Rupee exchange rate (so foreign exchange reserves are not drained)? There is only one name that is doing this. And like a Bollywood 70s movie, everyone except the hero’s mother and heroine know that it is the hero in disguise.
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Non-collateralized Loans??? There is problem number one.
[…] Saga of Yes Bank: Why you need a competent Finance Minister – Mar 6, 2020, […]
A strong administrative skills & financial specialist is required to be heading the finance ministry
While I agree that the Fin Minister has to be really strong and deal with an iron hand, its really unfair to target Nirmala Sitharaman for all the ills. The Ambanis from time immemorial have been the blue eyed brothers for any government. It is now an open secret that the current government is not on a good terms with the elder Ambani. It is really now time for Mr. Modi to act and put a robust mechanism in place and safeguard the small and medium investors in the country. The vast majority of Indians still believe that Modi will wield the stick soon and if there is any auspicious time for that its now.The Rafael contract not withstanding is anybody’s guess that a pauper is considered for outsourcing. The hero in disguise, if its Dr Subramanyam Swamy, i think many Indians who voted for BJP would really cheer. The personal egos should be set aside and Mr. Modi should invite Dr Swamy to become the FM and give Nirmala a good portfolio such as commerce or industries. It’s really a hard call for Modi to deliver or many would be disappointed a lot and make way for another round of scamsters and looters. If BJP and RSS are really concerned about the nation, now is the time to act because people are watching more now.
The intention of the article is quite clear. pressurizing the Govt. to make Dr. Subramanian swami the finance minister. In my opinion, Dr.Swami will definitely best suited to be the FM but the way it is being done is not in good taste. I would request Mr.Iyer to directly meet the PM and lobby for Dr. Swami.
Do you think PM listens to PGuru’s advise leave alone calling for an appointment? If so, he would have seriously considered Dr.Swami’s well before this dire situation. Social media and other platforms should pressurize and make Govt aware that there is a majority support to Dr.Swami. Nation can’t be put to stake for personal differences. Hope Modiji truly understands, at least in this year of reckoning, and appoints a ‘TRUE INDIAN & WISE ECONOMIST’.
The entire system stinks IBC notwithstanding and nobody seems to have an answer. This govt.,should have had the wisdom to publish a white paper on the misdeeds immediately on assumption of power. what prevented them leads to suspicion of underhand dealings cutting across political posturing. Stonewalling the truth to tumble out leads to more suspicion . All said this government has lost its credibility in tackling economic issues and crimes. No conviction in any case,2G collapse,banks with begging bowls all around,economic despair…. is the cup of woes for a aamaadmi full…it is overflowing but this govt.,is bent on pushing compliance ,compliance and more compliance for small businesses having made compliance itself a business for the much maligned CA club.
In my humble opinion, banks in India are compelled to restrict the repayment period to the shortest term, in the case of Infra structure loans. In almost all cases, it acts as a clog.
The problems of infrastructure enterprises in India are multifarious. When the commissioning is fixed, say after 5 years, it always over runs and may take15 years or more. If the unit is run on coal or any other fuel which is required to be purchased, sure there will be inordinate delay. Add to all those are the objections from so called environmentalists followed by court cases.
I have seen in the U.S and Europe, repayment period for infrastructure loans are 40 years or more. At low rate of interests,this will not be heavy.
Alas, this is not in the case of such loans in India. The repayment period, in most cases, is just around 15 years, and the rate of interest is PLR, which is around 8%. Imagine the predicament of any Infrastructure company.
It is very easy to blame ministers, RBI or the bank staff.
But what I have pointed out are the ground realities. I can give some examples, if you care to look into them.
What you have pointed out in US & Europe are ‘genuine loan transactions’ with Honest Intentions to repay.
But what happened in Yes Bank, PMC and a dozen other Banks are premeditated Bank dacoities by none other than criminal Trio – Manmohan, Chidambaram & Ma-Beta.
There are 3 layers of beneficiaries of these Bank Heists
(1) Political Criminals who take the majority share of the Loans – like Manmohan, Chidambaram, Pappu etc.
(2) Corrupt Top Management Thieves who allow the gross violations of Credit Guidelines
(3) The greedy corporate Heads who avail these loans
This article seems to be motivated – biased against Nirmala Sitaraman – for reasons best known to Shri. Iyer.
Not one Fin Min – it goes a long way back. Why don’t you rebut with facts?
Gov. should pass orders to attach the personal assets of the promoters of the companies which are defaulting. This is the only way and it will send a very clear message across to the corporates.