YES BANK BAIL OUT

The financial crisis that the Yes Bank has brought upon itself and by a domino effect on the economy of the country is a culmination of total mismanagement by the top officials of the Bank and apathy by the regulators. This unsavoury episode brings to focus, the great risks and lack of any meaningful oversight on the business conducted by the private banks in India.

But not stopping here, the problem is accentuated and the contagion risk is increased by the moves to bail out the bank from its present crisis through the intervention of State Bank of India. Enough hints on this matter were provided by the Chairman, SBI when he spoke about - YES Bank will not be allowed to fail and that some "solution" will emerge to straighten its financial condition - on 23rd January 2020. Now the picture is clear with the RBI appointing the recently resigned DMD & CFO of SBI as the head of Yes Bank, suspending the board . That this is under a game plan becomes clear as the person recently resigned from SBI which is not a common event. This bailout action as proposed is against prudence or common sense, more so under the present scenario of a global recession and precarious situation of the economy. One can be pretty sure that this is being done under some kind of fiat by the government who wishes to hide the dirt under the carpet. This is not surprising as we find the government increasingly pursuing a policy of ‘privatisation of profit and nationalisation of loss.’

We are reminded of 2004 when the Global Trust Bank, another private sector bank was taken over by the Oriental Bank of Commerce. The striking similarity in the high flyer profile of the CEOs of both the private Banks and the much-hyped performance of the shares of the Banks at the bourses is worth recapitulating. This is therefore not something new or innovative as a solution for the crisis. Rather it raises a question if lessons were really learned from previous experiences. Whether the regulators had formulated any plans to avoid such catastrophes in the first place is a point to ponder. If not, then who takes responsibility is the next question.

Coming to the matter of intervention of SBI to bail out Yes Bank, it is difficult to understand the logic behind it. The SBI has just come out from the aftermath of a messy and lengthy process of amalgamation of its five subsidiary banks, in spite of sharing a lot of synergy with it. Now if it has to or it is forced to take the Yes Bank under its fold, then that will surely sound warning bells all around. But then such decisions are taken by the executives and approved by the Board. It is doubtful whether the Board members are aware of their duties to protect the company. They appear to be fulfilling the interests of the corporates and the government by proxy. Further without the representatives from the workmen and officers on the board, such decisions are being passed without any note of dissent or even meaningful discussion.

On one hand, we find that the SBI and other PSU Banks dragging their feet with inordinate delay in settling the bipartite negotiations with the employees represented by the recognized unions pleading lack of funds to meet the wage bill. We find that the interest rate on deposits is being regularly decreased along with charges and commissions on different services increased hampering the depositors and constituents. On the other hand, we find huge corporate NPAs being written off in a routine manner and without compunction. And now, with bailouts of their competitors in the private sector, the whole financial infrastructure is being seriously compromised.

We are not opposed to the private sector per se or even private banks as long as they operate within the framework of guidelines and laws framed for the banking sector. We acknowledge their relevance for the introduction of new business models and ideas. They can provide good competition for PSU sector financial institutions. But our sad experience is that they are overhyped entities generally operating at the whims or fancies of individuals at the behest of vested interest groups. Their business model of reckless and aggressive growth is laced with an assumption of high-risk assets and multiple violations of norms and guidelines which makes the whole system unsustainable. Yet as the going got good, these persons are lionised by the media with the help of a certain amount of organised promotion activities and the image of a fast-growing efficient company is projected from all available platforms. But in the finance world, it is very difficult to sit upon inherently risky positions for a considerable period of time and therefore the sins of omissions and commissions catch up with these high flyers at some point in time. We have recently seen the heads of the two top private sector Banks being ingloriously and unceremoniously unseated from their positions after long spells of role model stature. So it will be quite moronic to assume that everyone in the system responsible for monitoring, regulating and disciplining these private sector Banks are innocently unaware of what happened in Yes Bank.

The problem is compounded by the general insensitive approach of the government towards the PSU sector and revival of the PSU banks with a long term vision and nurturing approach. The recent decision to merge the PSU Banks is one such step in the wrong direction. There should be a strong protest against the bailout of Private Sector Banks by the PSU Banks and the answer to these apprehensions should be placed as a white paper on record in the public domain to warn the depositors, account holders, customers and the general citizens of the risks and dangers involved, not only to the Banks but to the whole financial system of the nation.