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Yes Bank: India’s first PPP (public-private partnership) bank rescue act
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Summary
Some analysts and columnists have already written the obituary of the Yes Bank rescue experiment. But the last word will be said by the depositor.
With SBI taking a 49% stake in Yes Bank, Yes becomes India’s first instance of public-private partnership in the process of rescuing a bank. It is still heavily public, with SBI providing the lion’s share of capital, but news reports indicate a few private institutions and individuals and maybe even foreign private equity funds are being approached to take a stake in the bank.
Analysts of broking companies like Credit Suisse and Macquarie and some columnists have already written the obituary of this experiment. But the last word will be said by the Yes Bank depositor.
On the day the moratorium ends, we will have one of three scenarios listed below:
– Most depositors rush to withdraw all their money
– Only some rush to withdraw all their money
– Some withdraw some money.
The process will be dynamic. The RBI is bound to provide arrangements to give Yes adequate cash against its SLRs (statutory liquidity ratio) and even CRR (cash reserve ratio) reserves. That itself may be over Rs 50,000 crore.
If depositors find that cash is available for the asking, it is possible there won’t be panic, or panic, if any, may subside.
It may help if SBI, Yes Bank, government and the RBI proactively reassure depositors that their money is safe.’
One early sign is reassuring. In the wake of the Yes Bank issue, many feared other private banks will see a run on their deposits. Over the day of Holi, I spoke with a bunch of private-sector bankers and they said they have observed no change in the behaviour of their depositors: no rush to withdraw deposits at all.
One banker said they did get calls from some large depositors asking if all is well with the bank, but anticipating such queries, they had prepared branch staff to handle such queries with reassurance.
The Yes Bank episode takes one back to 2003. I remember telling a relative who had deposits in Global Trust Bank that no commercial bank depositor has lost money in India. After the moratorium on GTB was lifted, he did not bother to withdraw more than what was needed.
Having said that, 2020 is tougher than 2003. India is a way more interconnected economy. Social media is much more active. Also GTB got merged into the state-owned Oriental Bank and that may have reassured the GTB depositor.
Yet, not often do most depositors know the difference between state-owned banks, scheduled commercial banks and even cooperative banks. Going by the behaviour of private bank depositors over the last 48 hours, it is possible that if the period of moratorium ends in a week as the Yes Bank administrator hoped, depositors may not resort to panic withdrawal. But that still remains a hope.
The RBI, SBI and the government have taken a huge gamble and it will take a brave man to say they will pull it off.
One, SBI needs to find enough private investors and it is still not clear they can succeed where Ravneet Gill has tried for a year and failed.
Two, the moratorium needs to be lifted very quickly and completely, for depositors to stay.
But even if they do, that will still be only the first step. Challenges ahead will include retaining good bankers and motivating those who remain to perform the uphill task of convincing new depositors and companies to bank with Yes.
And in the background, the top team that dares to stay back has to continue the task of sifting bad loans and chasing their resolution and recovery.
Public-private partnerships in far simpler cases have not been resounding successes in India. Was it too ambitious to apply it to a highly volatile case of a failing bank? Would it have been simpler to nationalise the bank and then steadied it or shut it.
It’s not surprising the obituary notes abound.
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