Dubai: The Indian Government’s intervention late Thursday to save private sector heavyweight Yes Bank has, so far, not managed to reassure everyone... least of all its shareholders. The stock was pummelled in the initial hours of Friday trading, and at one point was down as much as 83 per cent. (It was 51 per cent lower by 2pm India time.)
For NRIs in the UAE and Gulf, the latest news about Yes Bank’s woes will raise further concerns. The Thursday action by the government also restricts all depositor cash withdrawals to 50,000 rupees until next month. The bank has also been placed under an administrator, which effectively strips control from the board of directors and senior management.
“We are reaching out to all [Nonresident Indian] clients to reassure them that these restrictions are for a short span,” said a senior official at the Bank’s south India operations. “It’s the Indian Government via the Reserve Bank of India that is stepping in.
“All deposits are safe. Operations will go back to normal.” (The official did not mention as to when this could happen.)
A formal statement from Yes Bank is awaited.
Calming depositor nerves
But assurances were coming in from Indian Government sources, which is overseeing the whole Yes Bank turnaround plan. According to news agencies, the Chief Economic Advisor to the government, Krishnamurthy Subramanian, said: “I want to assure all depositors that their funds will remain safe, and there is no need to panic.”
You will see very swift action from the RBI to put in place a scheme to revive
And the Reserve Bank of India Governor Shaktikanta Das said that there will be a swift action from the bank to put in place a scheme to revive Yes Bank. “The 30 days which we have given is the outer limit. You will see very swift action from the RBI to put in place a scheme to revive. A market-based resolution of the problem, a bank-laid, investor- laid resolution of the problem is always preferable.”
Yes Bank was at 16.95 rupees a share, down 19.85 rupees by 2pm India time. For a stock that has struggled all through the last year and more, Friday’s shock did take it to a new low. Chances of an improvement – an immediate one – look remote. (But in afternoon trading, there has been some gain, helped by value-seeking investors.)
One reason is that the State Bank of India, the country’s mega-bank, said no negotiations have taken place over its role in any upcoming rescue of Yes Bank, which had seen its corporate loan book turn sour and severely impacting its operations.
But fund managers believe the Indian Government has laid down the marker… and Yes Bank will not fail. “Any restructuring orchestrated by RBI will ensure there is no loss of interest – or principal – to any depositor. This has been – successfully – before in the case of Global Trust Bank,” said Siddarth Razdan at Indianivesh, an India focussed fund.
“There are many other examples – United Western Bank, Bank of Madura – where the government made a move to stem the poor performance.”
Once RBI announces a restructuring, including possible new shareholders, confidence should be restored
But even as depositor interests are taken care of, what of shareholders in Yes? Razdan reckons that they ought to be patient. “Yes, there is blood on the street as far as Yes Bank is concerned – but once RBI announces a restructuring, including possible new shareholders, confidence should be restored. Pretty quickly.”
But can it?
Yes Bank had in recent months been putting out regular news bits about interest from a swathe of investors. Yet, nothing materialised. “These ended up looking as downright lies each time a new investor name was announced and then weeks passing by without any forward movement,’ said one industry watcher. “All the while, the bank went through an asset depreciation like never before.”
Hopefully, the Indian Government stepping in will put an end to that. For now, the Yes Bank saga has a new chapter.