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Crisis-hit YES Bank has shown remarkable progress after its management was taken by the clutch of investors led by State Bank of India (SBI) last year and may take two more years to stabilise, said former SBI chairman Rajnish Kumar.

"The situation in which YES Bank was, you have to give three years time at least for it to stabilise... it has shown remarkable progress as the condition was very bad when SBI salvaged it," he told PTI while sharing a sneak peek of his memoir.

In his book titled 'The Custodian of Trust', Kumar said that SBI was reluctant to play the lender of last resort role for the YES Bank but circumstances compelled it to rescue the country's fourth largest private sector lender.

"Initially, I believed that after having achieved the mergers of six banks, SBI would be spared the task of saving yet another bank. The last bailout (in 1995) by SBI had been that of Kashi Nath Seth Bank, a family owned bank, operating in a few districts of Uttar Pradesh (UP)," he said.

He mentioned in the book published by Penguin Random House India (PRHI) that there was pressure on him to find the other investors by March 13, 2020, by the RBI to avoid any cascading impact of the country's fourth largest private sector on the financial system.

The Reserve Bank India on March 5, 2020, imposed a moratorium on troubled lender YES Bank and capped withdrawals at 50,000. Subsequently restructuring plan notified by the government on March 13 leading to lifting of moratorium on March 18, 2020.

As per the restructuring plan, SBI cannot reduce its stake in the bank to below 26 per cent for a period of three years, while other investors and existing shareholders will have a lock-in period of three years for 75 per cent of their investment in YES Bank.

However, the lock-in period will not apply to shareholders with less than 100 shares.

SBI, which holds about 49 per cent stake in YES Bank, was joined by other private players like ICICI Bank, Kotak Mahindra Bank, HDFC, and Federal Bank to with rescue capital to save reputation of private sector banking industry as many state governments had already issued direction for withdrawing money from private banks.

This compelled the RBI to step in for damage control by writing to all the state governments to assure them about the safety of funds parked in private sector banks.

"V Vaidyanathan of IDFC First Bank also chipped in as a surprise late entrant with a commitment of 150 crore. Despite all these commitments, however, I was still falling short of the target of 10,000 crore.

“In an effort to bridge the gap between the offers and the required investment, I called (C S) Ghosh of Bandhan Bank. He reluctantly agreed to put in another 250 crore, which was a big relief," he said.

"The successful rescue of YES Bank in a short period of time is a unique example of perfectly coordinated action by the government, the RBI, and public-private partnerships," he noted.

The book noted that the YES Bank could not have been saved without the resolute and astute leadership provided by the RBI Governor, Shaktikanta Das, and the two Deputy Governors, M K Jain and N S Vishwanathan.

One learning that clearly emerges from these developments is that the system should always be wary of high-profile CEOs flaunting flashy lifestyles, irrespective of ownership of the company, he said, adding, they can dazzle and bring success in the short term but in the long term, many such enterprises have ceased to exist.

"India has a dream of becoming a 5 trillion dollar economy in the next five years. A sound banking and financial system is a sine qua non for achieving this dream...a transparent licensing and ownership policy for the banks is required to support these efforts," he added.

Kumar had an eventful three-year tenure (October 2017-October 2020) as the head of the SBI, which alone has over 20 per cent market share. In the book, he described it as the period during which he shouldered the responsibility of chairman cannot be termed as 'normal' under any circumstances.

When he took the reins of SBI, the Indian banking industry was going through one of its most tumultuous phases for the Indian banking sector as non-performing assets (NPAs) were at record high level after Asset Quality Review (AQR).

The problem of non-performing loans (NPLs) had severely impacted the balance sheet and profitability of banks coupled with the failure of a few prominent non-banking financial companies (NBFCs) and the near-collapse of the fourth largest private sector bank in the country, YES Bank, posed a serious threat to the private sector banking system of the country, he said in the book.

Kumar through his memoir shares his "incredible journey" as a banker -- from joining a probationary officer in SBI in 1980 to becoming its chairman in 2017 -- capturing the many changes he witnessed in India's banking sector during his career.

Prior to his appointment as chairman, he was Managing Director (National Banking Group) at the bank overseeing the retail business and digital banking. He was instrumental in ensuring cash to every corner of the country through the vast network of the bank during the demonetisation.

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