Today, the 5th of March, 2020 was an eventful day for Yes Bank and all its stakeholders including depositors, shareholders, investors, lenders, creditors, etc. At the end of the day RBI placed the bank under a moratorium for a period of 30 days.
Timeline of events (05-Mar-20)
So before we discuss our outlook, let’s go through the sequential order of events as the day passed.
09:15 AM
Yes Bank share opened weak and quickly dropped further to create a new 52 week low price at ₹28.
10:30 AM
News channels start flashing breaking news headlines on their screens reading “SBI & LIC to buy stake in Yes Bank”.
Economic Times – Govt asks SBI to form consortium to buy stake in YES Bank
11:20 AM
The share price rises sharply for about +25% and reached ₹37.50 within a hour of the news of SBI & LIC buying stake comes out. Volumes reach peak levels and are trading 6x above daily average.
11:40 AM
The stock exchanges (BSE & NSE) quickly spring into action and write an email to seek clarification about the news headlines from both Yes Bank and State Bank of India (SBI).
12:30 PM
As the day progresses, mixed news reports start emerging stating that SBI & LIC are planning to buy 49% stake in Yes Bank at ₹2 per share for a total consideration of ₹490 crore. The markets are confused about the developments but the share price holds the gains.
Financial Express – SBI and LIC to acquire half of YES Bank at Rs 2 per share
02:15 PM
Exactly at the same time, Yes Bank and SBI submit their responses to the exchanges about clarifying their position about the news reports being published since morning.
Yes Bank clarifies as below:
State Bank of India clarifies as below:
Important Points:
- Yes Bank declines any such development and says that it has not received any information from RBI / Government / SBI.
- SBI maintains a neutral stance by neither accepting nor denying any such development.
03:30 PM
Despite clarifications from both Yes Bank and SBI, the share price maintains its high levels and closes the day near the day high at 37.20 (+27%)
04:00 PM
Reports emerge that a high-level central body meeting of SBI is under progress to decide upon a revival plan for Yes Bank. The meeting is reported to be attended by senior officials from RBI and Government.
04:30 PM
The high-level meeting by SBI is concluded and the outcome of the meeting is not publicly released. Media starts reporting various possible outcomes ranging from a bailout to takeover of Yes Bank.
06:30 PM
J.P. Morgan releases a report that downgrades Yes Bank and gives a share price target of ₹1 per share from the earlier price target of ₹55 per share.
07:30 PM
Speculations go wild as media starts wildly reporting the JP Morgan’s downgrade of Yes Bank to ₹1 per share.
09:00 PM
Reserve Bank of India (RBI) releases an official statement saying that Yes Bank has been put under moratorium for a period of 30 days.
RBI Press Release – Yes Bank Ltd. placed under Moratorium
09:00 PM
RBI also releases a second follow-up statement saying that the current management of Yes Bank has been superseded by the RBI for the duration of the moratorium.
Gazette of India – Government notification of Yes Bank Moratorium
RBI Directive – Yes Bank under Banking Regulation Act, 1949
11:00 PM
State Bank of India (SBI) releases a letter to the exchanges stating that in the meeting held today, the board has given an in-principle approval to explore investment options in Yes Bank.
Our Outlook
The moratorium placed on Yes Bank by RBI looks like a preventive measure undertaken to avoid any panic withdrawals by depositors of the bank that might lead to a bank run. A bank run is an event wherein a large number of people start making withdrawals from their accounts because they fear that the bank will run out of money and cease functioning. This is a very serious situation for the central bank (RBI) and the government to handle and this can lead to severe repercussions through the country’s economy.
After Yes Bank’s management failed to raise capital on its own even after a period of 6 months and discussions with many investors and PE funds failed, the RBI might have evaluated various available options in consultation with the 2 pillars of India’s economy – the country’s largest public sector bank (SBI) and the largest state-owned insurance company (LIC).
After having finalized on the revival plans for Yes Bank, RBI must have considered that disclosing any such plans would essentially send out a signal that Yes Bank is unable to revive on it’s own and hence RBI and Govt.has to step in. Such an event could lead to a massive panic situation among the general public holding Yes Bank account and could trigger panic withdrawals (bank run). To protect the interests of the bank depositors and to avoid any such panic situation, the RBI before disclosing the revival plan might have decided to first place the bank under moratorium wherein the withdrawals are limited to ₹50,000 per account.
The moratorium is placed for a definite period of 30 days (5-Mar to 3-Apr) which is a good sign as the RBI has set a time limit which essentially means it plans to implement the revival plan within the 30 days and put the bank back on its feet quickly.
Further, the RBI has also superseded the bank’s management to ensure that they get a clear say and immediate approval in whatever decisions are being taken without having to deal with any kind of obstacles created by the bank’s management.
If one observes the sequence of events and the press releases of official statements as the day unfolded, all of it seems well-planned and well-timed.
The fact that RBI did not put the bank under Prompt Corrective Action (PCA) which is the standard protocol in the case of a declining bank signifies that they are aware of the revival plan they’ve in place and are sure about its implementation quickly unlike PCA which can go on indefinitely.
As for the share price of the bank, it might take a hit and drop quickly in the days to come as a knee-jerk reaction by the markets. The drop can be a shocker and a massive one. Overall RBI’s intervention looks like a positive sign and once they put the bank back on it’s feet it should react in the share price as well, though it might be a long journey going forward.
Depositors will be protected at all costs and their money will be safe but as for the shareholders, a lot depends on the fine details of the revival plan like pricing, capital restructuring, etc. that RBI comes up with. The share price might plummet but this company being a bank, and a large one, it will be put back to normal functioning as quickly as possible.
RBI’s intervention has essentially taken out the uncertainty out of the equation and the question over the bank management’s distrust is no longer viable as it is now clear that they’ve failed to stage a recovery on their own.
Reassuring excerpts from the RBI press release
“This has been done to quickly restore depositors’ confidence in the bank.”
“The Reserve Bank assures the depositors of the bank that their interest will be fully protected and there is no need to panic.”
“The Reserve Bank will explore and draw up a scheme in the next few days for the bank’s reconstruction or amalgamation and with the approval of the Central Government, put the same in place well before the period of moratorium of thirty days ends.”
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