Yes Bank Revival Plan – Burning Issues

Table of Contents

Yes Bank, a private bank with assets of around Rs 3 lakh crore, has come crashing down.
A bank as large as Yes Bank cannot be allowed to fail – its failure threatens the entire banking system.
The government and the Reserve Bank of India will do what it takes to protect the depositors of the bank.

WHAT COULD HAVE BEEN THE BEST WAY TO REVIVE IT?

The best course would have been for a private investor or investors to have acquired the bank, infused capital and revived it.
The RBI gave the management several months to arrange just that but with no success.

Government to take over the bank.
SBI, LIC and, perhaps, some other banks would form a consortium to rescue Yes Bank.
Merge Yes Bank with SBI or any other bank. (Global Trust Bank merged with OBC)
By many estimates, Yes Bank requires at least Rs 25,000 crore of capital. Thu, SBI would have severely stretched.
RBI placed in public domain a draft scheme for reconstruction of Yes Bank

Under the draft plan proposed by RBI,
It appears that a merger is not being favoured at this point.
RBI plans to alter the authorised capital for the reconstituted bank to Rs 5,000 crore from Rs 800 crore.
The plan proposes that any investor including SBI can pick up a 49% stake in the equity of Rs 5,000 crore at Rs 10 per share.
This would amount to around Rs 2,450 crore.

The draft plan is intended to bring in a solid promoter.
It is expected to stem the outflow of deposits that is certain to take place once the present 30 -day cap on withdrawal of deposits over Rs 50,000 is lifted.
Next, SBI would have to look for a private investor to whom shares would be issued at a suitable premium.
Through this, the necessary infusion of capital can take
All employees of the reconstructed Yes Bank will continue with the same pay for at least one year.

The investor bank will not reduce its holding in the new bank below 26% before completion of 3 years.
RBI says that State Bank of India (SBI) has expressed its willingness to make investment in Yes Bank and participate in its reconstruction scheme.

The catch in the plan is that depositors may have little incentive to stay with Yes Bank, however solid the credentials of SBI or any other promoter.
Why take chances, depositors would ask themselves. What if a private investor can’t be found?
A government guarantee of public deposits would be needed to stanch the exodus of deposits.
As of September 30, 2019, total deposits with YES Bank amounted to Rs 2.09 lakh crore.