Traders are willing to borrow Yes Bank Ltd shares at a cost of 15% per month, or about 180% annualized, to go short on the stock. And, that is after a more than 90% drop in the stock from its highs in 2018.

Time is running out for investors on-board the Yes Bank ship. This is the harsh truth some have learnt over the past year even though the captain of the ship is trying hard to plug the holes and get a rescue mission started.

Chief executive officer Ravneet Gill’s efforts to get a $2 billion life jacket is looking increasingly doubtful.

It is not surprising that the banking regulator is working on a rescue mission, considering that the lender couldn’t save itself so far. According to a Mint report on Monday, the Reserve Bank of India (RBI) is exploring the idea of selling Yes Bank’s stake to other banks, or ask investors to buy its loan portfolio.

A merger is a longstanding regulatory solution to troubled banks in India. The worry with this method is that mergers haven’t worked well for banks in the past.

Graphic by Naveen Kumar Saini/Mint
Graphic by Naveen Kumar Saini/Mint

ICICI Bank Ltd took several quarters to overcome the challenges of swallowing Bank of Rajasthan. So did Oriental Bank of Commerce, when it merged Global Trust Bank with itself. The latest flurry of mergers in public sector banks are giving enough signs that this method has its own problems.

Having said that, it’s clear that Yes Bank needs the support of a strong balance sheet to steady its ship. The contours of such a deal may be complex, and unappealing for some stakeholders, but given the alternative of immense stress to the financial system, the central bank can be expected to pull this off like it did with past forced mergers.

The second solution of selling Yes Bank’s loan portfolio, perhaps in parts, is also fraught with problems. According to a former RBI official, selling loans would only buy time and some liquidity. “What the bank needs is capital and durable capital. That can only be brought by an investor,” said the official, requesting anonymity.

Meanwhile, a regulator-steered rescue would mean existing investors won’t gain much. Ergo, the Yes Bank stock fell nearly 9% on Monday after reports of a rescue plan from RBI.

Yes Bank’s market capitalization has had a massive erosion and is now at around 7,000 crore. It is clear that time is running out and the solution needs to be quick, even though it could be painful. On the hook are not just retail investors, but also depositors of the bank.

Yes Bank’s retail loan book is its prized possession and, to its credit, the lender is increasing the share of retail in its overall book. But even as it runs down its corporate loan book, it needs capital to survive.

RBI should see this as an SOS that needs to be answered immediately.





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