RBI prepares rescue plan if Yes Bank fails to secure funds

RBI is worried that if Yes Bank collapses, then it could have avoidable consequences for the Indian economy as a whole due to the domino effect.
RBI prepares rescue plan if Yes Bank fails to secure funds
RBI prepares rescue plan if Yes Bank fails to secure funds
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Yes Bank may find itself in an unenviable situation of not having found an investor to bail it out of its present turmoil. If that happens, the Reserve Bank of India (RBI) may come to its rescue, as per a report in LIveMint. RBI may ask one of the public sector banks to buy up pooled assets of the troubled lender. RBI is worried that if Yes Bank collapses, then it could have avoidable consequences for the Indian economy as a whole due to the domino effect.

Yes Bank is right in the middle of talks with a few interested parties, JC Flowers, Cerberus Capital Management and the Hinduja Group, among others for a possible fund infusion to the extent of $2 billion. The names mentioned by the bank in its communication to the stock exchange were JC Flowers, Tilden Park Capital Management LP, OHA (UK) LLP (part of Oak Hill Advisors) and Silver Point Capital. None of these entities have come up with a clear-cut proposal for making the investment. Yes Bank has meanwhile deferred the publishing of the results for the last quarter, ended December 31, 2019. 

There is a deadline of March 14, 2020, before which these transactions need to be completed. This is a deadline the bank itself has set while communicating to the exchanges requesting more time to submit the December 2019 quarter results. One option being mentioned is that Yes Bank could obtain some sort of commitment for a future investment but brings in a small tranche before March 14. 

There are advisors like Cantor Fitzgerald LP, IDFC Securities and Ambit Pvt Ltd working on helping Yes Bank raise this $2 billion.

One opinion from the banking circles is that it may be difficult to find a PSU bank willing to commit funds to rescue Yes Bank when their own situation is not that conducive. Many of them are in the process of cleaning up their books.

Yes Bank officials however appear to be confident that they can come up with a deal for the investment.   

There are concerns about Yes bank’s capital adequacy, compared to the norms set by RBI. As of September 2019, the figures indicated were Tier I capital adequacy ratio of 11.5% while the regulatory requirement is 8875%. In the case of the common equity capital ratio, the difference was much narrower with 8.7% against the regulatory requirement of 7.375%.

Rating firm Moody’s had downgraded the Baseline Credit Assessment (BCA) of Yes Bank in January this year to CAA2 from B3.

The bank will continue to face the pressure till it finalises one of these interested investors.


 

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