India's "Too Big to Fail" Banks
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Jan 23, 2020
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India's "too big to fail" banks are finding support in government finding solutions. SBI has assured that YES BANK will not be allowed to fail due to its large $40Bn Tbalance sheet. YES BANK has beenw itnessed failing indicators primarily with lower liquidity, leverage and its capital ratios. The bank seems attractive for takeover bid.Kotak Mahindra Bank might be interested in taking it over.
Though the bank says its CAR is way above regulatory requirements, analysts are not convinced.Rana Kapoor's exit did not help. The share price has climbed down from its peak of Rs.585/share in under a year. The bak is trying to raise 10000 crores which might help its ratios. The bank has exposure to industries that are failing. Just 3 companies including ADAG,DHFL have outstanding of around $3.5 Bn USD.
It is not just YES BANK alone but many other banks are suffering in India. The NBFC sector is weak currently. NBFCs make long term loans to firms borrowing short from banks. Corporate defaults affect the loans it takes from banks. Many of the NBFCs exposure is to real estate sector whose current weakness is causing the stress. ILFS,DHFL all faced huge cash problems after the borrowers defaulted on loans.
PSU Banks have formed committees to monitor all loans above 1 Crore by separate departments to derisk. PSU Banks are stronger. Kotak Mahindra Bank among the private banks is currently stronger and is looking for more consolidation opportunities. It is well capitalized . Most corporate loans have political pressure behind them on banks to write them off.
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