The State Bank of India (SBI) and Axis Bank suggested on December 17, 2019, that Kotak Mahindra Bank (KMB) would be the best choice for acquiring Yes Bank, which has been facing a shrinking of capital since 2018. Earlier this year, Yes Bank’s capital declined rapidly due to its non-performance assets under the new chief executive, Ravneet Gill. However, Rohit Rao, the Chief Communication Officer of KMB, commented, “These are comments made by other bankers and reflect their views, and not ours.”
SBI and Axis Bank’s Suggestions
The chairman of SBI, Rajnish Kumar shared his view, “I think Uday (Kotak) is the best candidate to acquire Yes Bank. You need deep pockets, Uday has that.” The statement was released in Times Network’s India Economic Conclave yesterday. Amitabh Chaudhry, the CEO of India’s third-biggest private bank, Axis Bank, replied to the question with a similar suggestion that KMB would be a suitable candidate to buy Yes Bank.
As Chaudhry continued, “We (Axis Bank) are a smaller bank. We are trying to ensure that we grow big so that at some stage we can acquire others. So, yes Mr. Kotak, they are best suited rather than us.” According to an industrialist analyst, “The acquiring of Yes Bank would help Uday Kotak to reduce the promoter stake in KMB and help him get closer to the levels mandated by the highest bank of India, Reserve Bank of India (RBI).”
Earlier, Axis Bank and KMB had discussed the buyout of Yes Bank, as the latter sought for additional funding, including from the foreign investors. Referring to the foreign investors’ attempts at acquiring, the CEO of KMB stated, “I’m looking forward to best in class quality but strong Indian-owned and controlled financial sector and while we must attract foreign capital, we must ensure that there is no colonialization of Indian finance.”
Yes Bank’s Financial Turmoil
The prolonged decline of Yes Bank’s revenue over the years had started calling for funding from domestic and foreign investors. The bank lost 7% revenue in September 2019 due to the increase in the number of non-performing assets that ultimately led to the shrinking of its capital and nudged the bank to start looking for capital funding.
The share price of Yes Bank had been declined drastically, as its price dropped from a soaring price of Rupees 400 per share price in 2018 to Rupees 32 per share in October 2019. Since last year, Yes Bank has been one of the most vulnerable private banks in India.
Early December, the bank announced that it planned to raise its capital to $2 billion and invited several investors for the funding. However, the bank’s board could not finalize its funding policy in the last board meeting that was held on December 6, 2019.
Moreover, the policies for the bank’s capital raising had been associated with several problems, as the RBI had strict regulations on foreign investors’ involvement in the fund-raising in Indian banks. With this financial situation of the bank, some industrial analysts speculated whether Yes Bank is actually seeking for an acquisition. However, the Yes Bank management later denied such rumors.
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