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Published on 15/05/2019 12:53:27 PM | Source: HT Media

RBI`s night lamp in Yes Bank will ensure stability but capital raising a challenge

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Mumbai: Just four months back, troubled Yes Bank got a new chief to shower sunlight on its books. But it seems a night vigil was needed as well to police the lender from hereon. After all, Yes Bank is a systemically important bank and has a huge pile of deposits it needs to safeguard.

Enter R Gandhi, former deputy governor of Reserve Bank of India (RBI), as a board member.

It is rare for the banking regulator to make a special board appointment. In the past few instances of such appointments, the banks in question were small.

To make matters worse, the regulator has been cryptic about the reasons for such an appointment. But the banking law clearly states that the regulator puts an official as a board member when it feels the interests of the bank or its depositors are threatened.

Gandhi’s entry has brought back questions on the lending practices at the bank. For now, it has thrown a spanner into Yes Bank’s plans of raising capital.

In short, raising money from capital markets is going to be a challenge and Yes Bank needs capital to grow. The stock’s drop by as much as 5% today is not a good sign.

That said investors can take some comfort from the fact that the new chief Ravneet Gill has already assured the lender would fall in line with the regulator’s rules on every aspect.

Gill also laid out the negative outcomes saying that credit costs could remain high for the bank as it weeds out toxic assets and piles up insurance against risks through provisioning.

What investors now fear is whether the rot in Yes Bank is yet to be fully revealed. The bank has a significant exposure to troubled companies and its watchlist stands at ₹10,000 crore.

Until the air on Yes Bank’s lending practices clears, the stock is unlikely to see any breakthrough.