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A vulnerable sector

A vulnerable sector

The Reserve Bank-imposed moratorium on Yes Bank came after taking due cognisance of a struggling lender. Yes Bank, therefore, cannot issue new loans, cannot disburse payments nor make any investment and its depositors cannot withdraw more than Rs 50,000 per account. With few assets and more liabilities, the Central bank eyes a revamp or a merger to rescue the bank from decline. Updates from Friday state that State Bank of India will pick up 49 per cent stake in Yes Bank under the reconstruction plan by acquiring shares of face value Rs 2 each at a premium of Rs 8 apiece. The draft reconstruction plan shall see a new board of directors being appointed to Yes Bank along with a new MD and CEO. While all employees will be retained and offices and branches would function as before, the investor bank (SBI) will have two directors on the reconstructed Yes Bank. While RBI has acted in the interest of small depositors, it should not have wasted time in taking over given Yes Bank's financial health since last year. Back in May 2019, RBI utilised its power to nominate a director's in the bank's board. Therefore, developments at least from last May had RBI witnessing first hand account of the decline. Delayed December-quarter figures by Yes Bank were a strong sign of financial instability but even so, RBI arrived with a helping hand near the end of the fiscal year. SBI rescuing Yes from clutches of decline is yet another classic case of a state-sponsored rescue. When seen from the lens of government, its massive recapitalisation plan of Rs 2.11 lakh crore and major mergers that followed alongside since last year have only shown India's banking sector in a bad light.

While there is not much option for Central Bank anyway, Yes joining the ranks of banks that ended up requiring state intervention projects a worrying factor. While depositors and Yes Bank employees should be thankful for the intervention, banking reforms are required more than ever. Loss of confidence in the banking industry is a perilous trend. A string of state-sponsored interventions to remedy a general decline is laudable, yet the government has to take leaps of faith in engineering reforms that shall see both private and public sector banks script a rising trajectory. Just as the old saying goes — the excess of anything is bad — repeated state-interventions might risk the sector's own ability to overcome crises and recapitulate. Government has to strengthen the core of the banking industry and minimise state-sponsored rescues for the betterment of the sector.

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