All may not be lost for YES Bank but insiders say its recovery to be slow

It will depend on the acquiring bank or financial institution's capacity to hold the assets till the market improves and sell them later to recover sizeable chunk of the loans

All may not be lost for crisis-hit YES Bank with banking industry insiders pointing out that the bank has heavy duty collateral against loans.

It will, therefore, depend on the acquiring bank or financial institution's capacity to hold the assets till the market improves and sell them later to recover sizeable chunk of the loans.

For instance, if collateral is a residential building, it may not fetch good price in a depressed market.

But given that some of the big financial institutions such as IL&FS and DHFL have collapsed in recent times, the market may not respond favourably to YES Bank.

"This is the reason we expect revival of YES Bank to be very slow," a Mumbai-based bank executive said.

YES Bank had earlier made all possible efforts to raise growth capital but miserably failed. Now that the leading private bank is on the verge of collapse, the government has nudged the SBI to form a consortium and rescue the bank.

The RBI, as regulator, has come into action and taking all possible steps to ensure the bank makes a turnaround.

The situation at the YES Bank has reached alarming level forcing the RBI to supersede its board. A limit has also been imposed on withdrawal of deposits in excess of Rs 50,000.

There is a growing perception in the market that a sizeable part of YES Bank's loans have turned into non-performing assets (NPAs) which are not recoverable. This will lead to erosion of its assets but given that the bank, in the past, took heavy collateral for lending, the market expects the acquiring entity to recover part of the loans by selling the assets.

"Loans are certainly turning into NPAs but does the underlying collateral have market value and to what extent, can they be recovered? What one sees is that bank has already made provisions for bad loans but the bank has the right to sell the assets mortgaged with it," another banking industry executive said.

The government is learnt to have asked the SBI to lead a consortium to buy stake in YES Bank. This signals the government will not allow the bank to fail.

Many industry watchers feel that the road to recovery for YES Bank will not be easy and going forward, their size will shrink.