Yes Bank Merger: Yes Bank not to merge with SBI

For someone who is used to binge-watching some random Indian drama, the concept of “comeback” wouldn’t be a new one. Usually, the Hero might fail terribly, and after the second half, he would give an awesome comeback. And to our amusement, we can expect something like this to happen in the real-life as well. Can you guess where I am heading? Of course, it is Yes Bank. It seems to be working hard to make a possible comeback and arise from its grave situation. 

Despite the various setbacks and pitfalls, the private lender is given an opportunity to make this happen. While various questions surface whether or not the Bank would reach the feat of success, another information has come up. Want to know what it’s about? 

The Yes bank chairman claimed that there is no plan on the merger of Yes Bank and SBI. Further, he also claimed that no such discussion had been held as of now. So what does that mean to you as an investor? Read further to find out all the details and information pertaining to that. 

Yes Bank’s brief summary of the past 

Established in the year 2003 by founder Rana Kapoor, it was one among the top four private lenders in the country. However, the Bank was aggressive in its lending approach, and that is where the trouble started to kick in. The Bank had mounting bad debts and showed dangerous levels of NPA( Non-Performing Asset) in its financials. This alerted the market and bought to light that the Bank was in sure trouble and has already started to deteriorate. The share prices came tumbling down. 

The alarm was so loud that it woke not only the investors and depositors but also the RBI. RBI, as usual, came to the rescue. Following which, the Bank saw some drastic changes in its management and also had a draft reconstruction scheme drawn to revive it from the losses incurred. According to that, SBI came forward to lift the ailing unit and save it from the edge of sure and slow death. SBI took a 49% stake in the Bank and was said to invest up to 24.5 billion rupees. 

It was also placed under a moratorium by the Central Bank. The RBI also went forward to impose a restriction on the withdrawal limit as well. The moratorium which was given for a period of 3 months and was later extended till the mid part of September. Further, the private lender, Yes Bank, opted for a special liquidity facility (SLF) from the Bank as well. The special liquid fund summed to 50,000 crores. And the same was borrowed on September 8. All made its stocks rally heavily. 

Current scenario: Yes Bank repaid the entire Rs. 50000 crore SLF before the due date to RBI

Now let’s come back to today. The Bank seems to be doing a good job of reviving itself. A few days back, the company claimed that they repaid the entire Rs 50,000 crore of Special liquidity facility, which they had availed earlier. They made the repayment well before the due date. Further, it also claimed that their customer liquidity inflows have increased, and their cost has also seen a steep fall of approximately 20%. Adding to that, the board also claimed that the recovery of bad loans are being looked into, and the process is taking place at a full fledge. All this increased the Bank’s credit rating, with ICRA upgrading the ratings of various debt instruments. The markets also seemed to be happy as the stocks saw a slight rise. 

To top all this, the Bank also ruled out the possibility of a merger at present, expressing strong confidence over the revival plan. Having said that, let’s get down to the details now and dig in a little deeper. 

The Yes Bank-SBI merger - Is it possible? 

As such, the government will not let the Bank fall off the cliff, unlike the case with others. The reason is simple. Letting a bank fail is ‘too big of a loss.’ This might leave an adverse impact on the entire economy and affect customer trust at large. This is something our past had taught us, as it was seen when the US allowed Lehman Brothers to go down. It’s been more than 10 years, but we are still suffering the consequences of that.

Because liquidation of a bank is not like any other liquidation of a corporate entity, there are issues involved in fiscal instability, confidence, and it could impact the whole banking system and the economic system. In short, it might shake the financial stability of India. Also, if we have to look at the History of SBI, you would notice that it has a way of dealing with its investments. It ensures that it’s investments do not fail. Hence, having it on board, we can hope that the same happens with Yes bank too. Hence, chances of its liquidation or failure are very slim. 

But what if the rescue plan does not work out as it is planned. In such a case, we can expect a takeover or a merger. But either way, it is going to leave a huge impact on the books of SBI. And also, there are a lot of processes that the Bank has to undergo in order to fulfill the merger or acquisition. This, as you can see, has made this option quite tiresome. So everyone will try to make the former work and try to skip the merger as much as possible. Also, with the revival plan showing some handsome results and trust being rebuilt, one can easily predict that such a merger has little to no possibility of taking place. 

Conclusion 

Despite the pandemic, the Bank has worked hard and shown some improvements in its conditions and in its financial as far as the first quarter is concerned. With a lock-in period of 3 years, we can expect that the Bank will soon get back on its toes. Further, the Bank as claimed that it would look at its mistakes and make it a point to not repeat them in the years to come. The way the story is directed, we can only hope that things will get back to normal soon. However, we will have to wait patiently to get an answer to this question of ours. So what do you think is it going to make a comeback or not?