Who is actually paying the price of the Yes Bank bailout?
It has been a hectic 15 days for the depositors and investors in Yes Bank. The bank had come under an RBI moratorium on 06 March but it was rescued in less than 2 weeks. While the rescue is done and dusted, the question is; who has paid for this rescue?
Depositors were protected
Barring the initial hiccups of the RBI moratorium, depositors were largely assured and also protected. The issue of deposit insurance never arose after the finance minister assured the depositors of the bank that every penny would be safe. That assurance was essential to protect the integrity of the banking system and give comfort to private bank depositors across the board. Any run on banks would have been a systemic risk. The FM assurance and the backing of a formidable name like SBI surely worked.
SBI consortium may gain
What about the large banks that put in the capital to bail out Yes Bank? They also may not have much to worry. The stock price is already 4-5 times their allotment price of Rs.10. Even assuming that they can only sell one-fourth of their holdings, they would more than recover their investment. SBI and others may still stay invested in Yes Bank but they are most likely to recover their capital with a healthy return. The banks that participated in the restructuring of Yes Bank don’t have much to worry.
Investors will be losers
Equity investors will end up paying a big price for the Yes Bank bailout. This price will be paid in two ways. First, most investors may have bought the stock at higher levels. Yes bank had touched a peak of Rs.392 in August 2018 before falling all the way to Rs.6 this month. Clearly, most of them are likely to be stuck in the stock at higher prices. The bigger catch for these investors is that now they cannot even exit the stock fully if they had been holding the stocks in their demat account as on 13th March. Only 25% of the shares (above 100 shares) will be available for sale. The balance 75% shares will be locked in for 3 years. Both the traders and the investors in Yes Bank may pay a huge price for the bailout.
AT1 bondholders get nothing
Another set of investors that paid the price for the bailout are the AT1 bond investors. AT1 bonds are perpetual bonds used by banks to raise quasi equity capital. As part of the revamp package of Yes Bank, the RBI has written off AT1 bonds to the tune of Rs.8500 crore. Nearly 30% of these AT1 bonds were sold to mutual funds and these debt funds may end up passing on these losses to the investors. In short, depositors and banks will benefit but most investors in equity and debt of Yes Bank may eventually end up bailing out the bank. They will foot the bill!
