When initial symptoms of ailment in sensitive financial institution like a Bank are not diagnosed professionally and in time followed by wrong reporting of the health of assets and faulty auditing or not rectifying audit report mentioned irregularities promptly and timely , the result very often is, what befell on Yes Bank recently. How could this Bank in the private sector, the fourth largest , where hundreds of thousands of its constituents have been reposing trust in it, go in for under reporting of its affairs in a routine way needs to be probed into. Regular outflow of liquidity of this Bank struck a severe blow to this Bank after attempts to raise its new capital base failed. Forced sale of 10 crore equity shares became the cause of the current decline of the Bank. In short, coming up of more and more Banks serve no purpose except promoting unhealthy competition and malpractices which speaks for just three or four big Banks only in the country.
Reserve Bank perhaps is focussing its regulatory and operative control over public sector Banks more than the ones in the Private sector which speaks for most of these Banks undergoing bouts of hiccups . It was but expected that the country’s Central Bank would place Yes Bank under moratorium and consequently impose limits on withdrawals by the depositors for one month not exceeding Rs.50000 , of this cash starved lender Bank . Depositors otherwise have been assured by Finance Minister Nirmala Sitharaman that their “interests” would be protected. These Private Banks very often start getting treated by those who start them with their stake of whatever magnitude as capital, as their personal fiefdom. In other words, they very often indulge in treating them as their personal property forgetting or bypassing the fragile threads that hold a Bank together consisting of trust, honesty, adherence to procedural norms, hard work and regular monitoring of its assets, increasing incomes and curtailing or keeping to the minimum expenditures and above all best and prompt customer service.
Now, the proverbial hand is bitten that was feeding , or Karey Koi Aur Bharey Koi have to be set in by top sound public sector Banks to come forward and what is known as picking up a stake in the present case of Yes Bank , State Bank of India is coming forward , reportedly up to 49 per cent . What SBI is contemplating to do is going in for investments opportunities in Yes Bank. In other words, a restructuring plan for Yes Bank to bail it out is on the anvil. Not drawing pessimistic note , the convention about Banks is in times of crisis, as to what was its size . In that, Yes Bank is of a big size and “Too Big to Fall” maxim may be applicable in the instant case as well . The other point of view is that other parameters for it are not quite generating any hope excepting its merger with State of India.
There are other factors also which hardly can be ignored. Issues of fiscal instability, financial stability, confidence , fate of huge NPAs, which have larger impact on the entire Banking system and the economic system are to be taken into consideration. Those cannot be trivialised or compromised on. On the other hand, a slight slowdown in economy is exerting pressures to be not taking any liberties with risk management which were going to be more after, which shape the troubled Bank was going to take place. However, the revival scheme of whichever nature gets formulated, was going to take place within or at the end of thirty days .
We do not intend to render any advice in respect of their choices as investors are known as “Kings” in conventional Banking. However, in private sector Banks , depositors buying various financial products of the concerned Banks is their choice and of their liking . If private Banks are preferred to more sound public sector Banks ostensibly for slightly higher interest rates , allied risk related information must also be got known. We do not pronounce that to be the cause but that is only to allay any fears of losing any money. What should be not allowed is going in for non professional high risk decisions of heavy lending, back to back advance facilities to clear one NPA to create another and so on. A sound prudent lending policy coupled with regular monitoring of the financial health of the assets are the concomitant of sound Banking system with consistent growth and earning of profits. Last but not the least, RBI needs to review its policy of not being too strict towards private sector Banks as it is in respect of PSU ones. Only then, unscrupulous lending would be stopped and Banks saved from plunging into crisis as in the instant case.
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