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.
- Saga of Yes Bank: Why you need a competent Finance Minister - March 6, 2020
- SEBI deserves a specialist - February 13, 2020
- How was the former ICICI Bank head Chanda Kochhar caught for her sins? Who all tried to save her? - January 12, 2020