However, scepticism about any rescue of YES Bank
will remain. What we have here is a race against time. If SBI could persuade investors to cough up the required sums within the next few days, it would be quite an achievement. The chances of success would have been distinctly better had the present plan been announced at the time the board of YES Bank was superseded. The cap on deposit withdrawals of over Rs 50,000 might have been limited to, say, a week in the first instance. The negotiations with holders of Additional Tier-I capital have injected a new imponderable into the situation.
The test will come when the cap on deposit withdrawals is lifted. Whatever the capital infused and no matter that SBI will hold a minimum of 26 per cent of equity, it’s hard to see why depositors would want to stay with YES Bank after all that has happened. Bulk depositors will be among the first to flee. Moral suasion— to use the euphemism —might just get some corporate depositors to stay on. But for how long?
Assuming SBI can work things out at arm’s length as a pure investor, another issue arises, namely, conflict of interest. What firm would want to nurse back to health a potential competitor? That YES Bank is too small to compete with SBI is not the point. And the objection is valid even if SBI ends up making a profit on its investment in YES Bank. SBI is not in the business of taking care of competitors in the banking sector. Period. Nor, for that matter, are the private banks whose names are being mentioned as potential investors.
If SBI management is to expend scarce bandwidth and capital on turning around YES Bank, the logical course would be a merger of YES Bank with itself. As reality sinks in in the days to come, that still appears the likely outcome.
YES Bank’s collapse has again raised concerns about regulation and supervision. It is striking that Rana Kapoor
was able to sell whatever equity he was holding in YES Bank after being ousted from the board. Which means a bank’s promoter can wash his hands of the bank when things go wrong, leaving it to the regulator to salvage the situation. This is an unacceptable state of affairs. The regulator must ensure that the promoter holds a minimum stake in the bank until a new promoter is in place. Regulations on bank ownership need to be suitably modified.
Succession headaches at top banks
The issue of chief executive officer (CEO) succession at HDFC Bank has set tongues wagging. If it’s any consolation, some of the world’s top banks are grappling with the same problem. The CEO of UK’s Barclays Bank announced last month that he would step down in about a year’s time. The board has said it will now look outside for a CEO. HSBC’s CEO had to step down last August on grounds of under-performance after just 18 months into his job. The board has opted to name an interim CEO. Spain’s largest bank, Banco Santander, has gone back on its appointment of a CEO after having second thoughts over his pay package.
At J P Morgan Chase, Jamie Dimon reigns supreme after more than 14 years as CEO. There is no obvious successor in sight. J P Morgan Chase is a star performer. However, performance does not exempt an organisation from the imperative of succession planning.
Boards must have a set of two or three potential successors at any given point, with the choice narrowing to one over time. This is not academic theorising. At Goldman Sachs, more than a year before Lloyd Blankfein stepped down as CEO, the bank named two co-chief operating officers. A year later, one of them got the job. At GE under the late Jack Welch, something similar had happened.
A G Lafley, a former CEO of Proctor & Gamble, wrote in an article in the Harvard Business Review, “Many CEOs don’t push their boards to discuss what might happen when they leave because they don’t want to think about it…” This was said in 2011. Clearly, little has changed since.