Public sector bank may rescue cash-starved Yes Bank

As uncertainty over Yes Bank's capital raising continues, Dalal Street is busy guessing if the central bank will rescue the country's fourth-largest private bank in case it fails to raise capital again.

Among the expected steps doing the rounds in the markets is a merger with a deep-pocketed public sector bank as Yes Bank, unlike other struggling private companies, is systemically important.

Sources said that one of the stronger PSU banks, which is not part of the ongoing merger exercise, may be asked to take over the Yes Bank. The exercise would not be unprecedented as earlier (in 2003) the Oriental Bank of Commerce was asked to take over scam-ridden Global Trust Bank to rescue thousands of depositors having exposure in the bank.

"If a private sector solution is unsuccessful, and a regulatory-led resolution is implemented, Moody's expects that the Indian authorities will strive to maintain systemic stability and avoid losses to depositors and senior creditors," Moody's said.

Earlier this month, Yes Bank rejected Erwin Singh Braich's $1.2 billion investment offer and said it will raise Rs 10,000 crore by issuing securities. The bank also said it will take up Citax Holdings, and Citax Investment Group's investment offers in the next board meeting.

Uncertainty on the banks future have also found roots owing to the corporate governance issues. Recently, Independent Director and Audit Committee Chairman Uttam Prakash Agarwal resigned, alleging that CEO and MD Ravneet Gill was misleading the bank's board and shareholders.

Besides, the bank's financials have also come under heavy scrutiny. Rating agency ICRA noted that Yes Bank's solvency profile remains weak with net NPA/CET of 36 percent as on September 30, 2019. A number of rating firms have red flagged the bank's exposure to stressed projects.

Owing to uncertain news flow, Yes Bank, once the traders favorite, has proved to be one of the biggest wealth destroyers. Its stock price on Friday closed at Rs 39.25 a share from a high of Rs 285.90 in April 4, 2019.

Citing continued uncertainty with regards to Yes Bank's capital raising plan, Moody's Investors Service placed Yes Bank's long-term foreign currency issuer rating of B2 under review.

The agency noted that standalone viability of Yes Bank is getting increasingly challenged by its slowness in raising new capital.

Moody's said that because the viability of the bank absent a large capital injection is in question, Moody's has downgraded the bank's standalone credit profile or its BCA to caa2 from b3.

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( With inputs from IANS )