Instead of one-eyed approach, RBI should have dealt with Yes bank and Bandhan bank in a more sensitive manner

Any organisation is a contribution multiple stakeholders including Customers, partners, employees, shareholders, and general public. Recent happening in yes bank and the significant drop in its stock price has become the most talked about topic in the past of couple of weeks. In the absence of serious violations amounting to fraud or connivance, the RBI should have kept investor sentiment in mind while taking actions against Yes Bank.

While it took Rana Kapoor 14 years to build yes bank to this size and create wealth for all stakeholders involved, it took 3 to 4 weeks for regulator and other promoter of yes bank Madhu Kapur to bring down the market cap of yes bank by 40%. Retail and small investors lost Rs. 30,000 crore in the past 4 weeks. Someone should take responsibility for this!

It is not just YES BANK. RBI’s one-eyed actions overreached Bandhan Bank too. RBI barred bandhan bank from operating new branches. The restriction, that of seeking RBI permission to open new branches, is a throwback to the pre-liberalisation era, while we are actually close to two decades of financial liberalisation. Usually such restrictions are imposed when some crisis engulfs a lender — unlikely for a bank like Bandhan. RBI tasered Yes Bank and Bandhan. It needs to develop the regulatory finesse that acknowledges the sensitivity of other stakeholders involved – like customers, investors etc.

Even crisis-ridden public-sector banks, neck deep in losses, have not faced the kind of activism seen in Yes Bank and Bandhan Bank. Has the salary of a public-sector bank CEO being frozen amid all the mess that has happened in the sector? Nor has any CEO been removed from office just due to NPA divergence (other than for big-ticket fraud cases).

The kind of restrictions imposed recently on these private banks could probably hold good for prompt corrective action (PCA) candidates. In the absence of serious violations amounting to fraud or connivance, such regulatory restrictions might send a wrong signal to investors and distort investor perception. Obviously, the question uppermost on the minds of investors would be this: Which lender will face the music next? Then there is duplicity of stance too. The government hasn’t diluted its ownership in state-run banks but wants private sector banks to do it.

Not just public-sector banks, the new entrants do not have a level playing field with their old private peers either. Contrast with Kotak Mahindra Bank (KMB). Though the RBI has been demanding paring promoter shareholding in private banks to 40% since 2012, KMB was granted time until September 2014, a full one year after the new bank licensing regulations were put in place. Moreover, KMB will meet the 15% promoter holding norm by March 2020, 16 years after its incorporation, while new entrants need to comply with the norms within 12 years of operations. Doesn’t it tantamount to regulatory arbitrage?

References: Economic Times, Mint