The troubled Yes Bank is folding
The troubled Yes Bank is folding

Yes Bank Saga: A Narrow Escape For Kerala Government

KIIFB had parked Rs 207 crore in Yes Bank but luckily withdrew it in July 2019

Rejimon Kuttappan

Rejimon Kuttappan

When the Reserve Bank of India (RBI) superseded the Yes Bank board and imposed a withdrawal limit of Rs 50,000 per depositor, the Kerala government was all set to have lost crores.

An RTI document in possession with The Lede reveals that KIIFB’s Rs 200 crore were deposited in Yes Bank.

Kerala Infrastructure Investment Fund Board (KIIFC) is a Kerala government-owned financial institution set up to mobilise funds for infrastructure development from outside the state revenue.

The RTI obtained in July 2019 reveals that KIIFB had put Rs 207 crore as a fixed deposit. The document also reveals that Rs 166 crore in IndusInd Bank, Rs 370 crore in ICICI Bank, another Rs 370 crore in HDFC Bank and Rs 390 crore in Axis Bank have been deposited.

The deposit details are mentioned in the KIIFB 2018-19 financial statements too.

Talking to The Lede, a KIIFB official said that currently, they do not have any deposits at Yes Bank.

“The money was withdrawn in July 2019,” the official said.

In 2018 itself, Kerala Opposition leader Ramesh Chennithala had said that there are irregularities in depositing KIIFB money in private banks.

In a letter written to Communist Party Marxist (CPM) general secretary Sitaram Yechury, Chennithala had urged him to clarify on the double stand taken by the CPM and initiate an inquiry into the alleged irregularities in the allocation of KIIFB funds to private banks.

“KIIFB funds worth Rs 1262 crore have been parked in new generation private banks, including ICICI Bank, IndusInd Bank, Kotak Mahindra Bank, and Yes Bank,” he had written in his letter.

“I would like to know from you whether this policy to deposit public money in private run banks concurs with the myriad resolutions passed by the Communist party against private banks in this country. I would like to remind you about some of the resolutions passed by CPM, vehemently opposing the privatisation of banks and the risk they pose,” he wrote in his letter.

Meanwhile, responding to the allegations, Dr Thomas Issac, the Kerala Finance Minister, had said that “The KIIFB Act does not prevent the KIIFB executive board from investing in private banks.”

“The philosophy at work here is to reduce risk to KIIFB but at the same time to maximise gains. All the private banks that KIIFB has invested in have been rated ‘triple-A’ by SEBI-approved credit rating agencies,” the minister had said then.

On Thursday, the RBI, in consultation with the central government, superseded the Yes Bank board for 30 days, citing “serious deterioration in the financial position of the Bank.”

According to RBI, the financial position of Yes Bank has undergone a steady decline largely due to the inability of the bank to raise capital to address potential loan losses and resultant downgrades, triggering the invocation of bond covenants by investors, and withdrawal of deposits.

The RBI reveals that the bank has also experienced serious governance issues and practices in recent years which have led to a steady decline of the bank.

The bank management had indicated to the Reserve Bank that it was in talks with various investors and they were likely to be successful.

The bank was also engaged with a few private equity firms for exploring opportunities to infuse capital as per the filing in stock exchange dated 12 February 2020.

These investors did hold discussions with senior officials of the Reserve Bank, however, for various reasons eventually did not infuse any capital.

After taking into consideration these developments, the Reserve Bank concluded that it has to impose a moratorium.

Narrow Escape

PG Sunil Kumar, a financial analyst, told The Lede that it was a narrow escape.

“If the money was not withdrawn in July, the Kerala government would have lost the money. Now, we get only insurance for Rs 5 lakh. It means that we may have lost almost all the crores,” Sunil Kumar added.

Although the government has limited withdrawals from Yes Bank accounts to a maximum of Rs 50,000 per month, deposits with Yes Bank are insured for up to Rs 5 lakh by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly owned subsidiary of Reserve Bank of India.

Budget 2020 proposed to increase insurance coverage of deposits with scheduled banks from Rs 1 lakh to Rs 5 lakh by DICGC.

Meanwhile, Yes Bank’s RBI-appointed administrator Prashant Kumar said solutions are being worked upon for revival “well before" the moratorium period of 30 days ends.

Kumar, a former chief financial officer of State Bank of India, also assured depositors that their “money is safe and there is no reason to panic.”

“The current moratorium has been brought into effect keeping the depositors’ interest in mind and towards restoring their confidence. A solution is being worked upon to revive the Bank well before the moratorium period of thirty days ends,” Kumar said in a statement issued by Yes Bank.

Meanwhile, a revival scheme framed by the Reserve Bank of India (RBI) reveals that the State Bank of India (SBI) will pick up a 49% stake in troubled private lender Yes Bank.

The draft scheme, titled “Yes Bank Ltd. Reconstruction Scheme, 2020”, issued by the RBI, mentioned SBI as the “investor bank” and said it would pay at least Rs 10 per share for buying equity in Yes Bank.

According to the scheme, Yes Bank’s authorised capital will stand at Rs 5000 crore and the paid-up capital will be Rs 4800 crore and SBI will acquire shares at a price not less than Rs 10 each (face value of Rs 2 and premium of Rs 8).

The Lede