So SBI has been tasked with rescuing Yes Bank. It's a tall order. We don't yet the details of the plan. SBI, it's reported, will submit a plan to RBI, which, in turn, will put it up to the cabinet. That should be a couple of weeks at the least. In the meantime, will the cap on withdrawals of deposits of Rs 50,000 at Yes Bank be lifted? It would be risky, to say the least.
Giving Yes bank to SBI is, I'm afraid, a wrong move. It won't be enough to share up depositor confidence. The government should have nationalised Yes Bank. Then, perhaps, SBI and others to put in some equity and turn it around (although I have reservations even on that count).
Yes Bank was a star performer until 2017 or so. The performance of new private banks has been contrasted with that of public sector banks. There are several issues with some comparisons. They do not cover long enough periods. They ignore rescues of private banks by PSBs. They overlook the larger obligations that PSBs are saddled with and for which they are not compensated (demonetisation, Jan Dhan Yojana, financial inclusion, etc). They do not take into account the fact that PSBs were asked to finance infrastructure projects in the2004-09 boom while private banks focused on retail finance.
Once you make all these adjustments, you will get a different picture. One or two things are fairly certain. All private banks will feel the impact of the Yes Bank collapse. (The Maharashtra government's decision to withdraw funds from all private banks, if imitated by other state governments, is sure to have private banks reeling.). Two, given the shock to the banking system, any privatisation or even a fall in government ownership below 50 per cent is off the table for now.
More in my article for Bloomberg Quin, Yes Bank Revival is a Formidable Challenge.
Giving Yes bank to SBI is, I'm afraid, a wrong move. It won't be enough to share up depositor confidence. The government should have nationalised Yes Bank. Then, perhaps, SBI and others to put in some equity and turn it around (although I have reservations even on that count).
Yes Bank was a star performer until 2017 or so. The performance of new private banks has been contrasted with that of public sector banks. There are several issues with some comparisons. They do not cover long enough periods. They ignore rescues of private banks by PSBs. They overlook the larger obligations that PSBs are saddled with and for which they are not compensated (demonetisation, Jan Dhan Yojana, financial inclusion, etc). They do not take into account the fact that PSBs were asked to finance infrastructure projects in the2004-09 boom while private banks focused on retail finance.
Once you make all these adjustments, you will get a different picture. One or two things are fairly certain. All private banks will feel the impact of the Yes Bank collapse. (The Maharashtra government's decision to withdraw funds from all private banks, if imitated by other state governments, is sure to have private banks reeling.). Two, given the shock to the banking system, any privatisation or even a fall in government ownership below 50 per cent is off the table for now.
More in my article for Bloomberg Quin, Yes Bank Revival is a Formidable Challenge.
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