Vi & Yes Bank: Why The Continued Belief?

\nVodafone Idea (Vi) and Yes Bank have faced significant challenges in recent years, leading many to question why investors and customers still maintain faith in these institutions. Understanding the reasons behind this continued belief requires a deep dive into the potential for turnaround, the role of government intervention, and the psychological factors influencing investor behavior. Let's explore the multifaceted reasons why people continue to believe in the potential of Vi and Yes Bank.

The Allure of Turnaround Potential

One of the primary reasons for the continued belief in Vodafone Idea (Vi) and Yes Bank lies in the inherent potential for a turnaround. In the business world, stories of companies rising from the ashes are captivating. The possibility of a phoenix-like resurrection fuels the hope that these institutions can overcome their current difficulties and reclaim their former glory. For Vi, this potential is linked to its ability to successfully navigate the fiercely competitive telecom landscape in India, while for Yes Bank, it hinges on its capacity to recover from past governance and financial challenges.

Vodafone Idea's (Vi) Turnaround Prospects

Vi, born from the merger of Vodafone India and Idea Cellular, entered a market dominated by Reliance Jio and Bharti Airtel. The company has struggled with a massive debt burden and intense competition, leading to subscriber losses and financial strain. However, several factors contribute to the belief in Vi's potential turnaround:

• Government Support: The Indian government has introduced relief measures for the telecom sector, including a moratorium on spectrum payments. This support provides Vi with crucial breathing room to address its financial obligations and invest in its network infrastructure. The government's stake in Vi, acquired through the conversion of deferred interest liabilities into equity, also signals a commitment to the company's survival.
• Investment Inflows: Vi has been actively seeking investments to strengthen its financial position. Securing significant funding would enable the company to upgrade its network, expand its 4G coverage, and roll out 5G services. The anticipation of major investment announcements keeps hope alive among investors.
• Tariff Hikes: The telecom industry in India has seen gradual tariff hikes, which are expected to improve Vi's average revenue per user (ARPU). Higher ARPU is critical for the company to generate sufficient revenue to cover its costs and invest in growth.
• Strategic Partnerships: Vi's partnerships with technology providers and content creators enhance its offerings and attract customers. These collaborations can provide a competitive edge in the market.

Yes Bank's Revival Journey

Yes Bank experienced a dramatic downfall due to a series of governance lapses, bad loan accumulation, and financial mismanagement. The Reserve Bank of India (RBI) had to step in with a rescue plan, which involved a consortium of banks injecting capital into Yes Bank. Despite these challenges, the belief in Yes Bank's revival is driven by:

• Recapitalization: The capital infusion by the consortium of banks provided Yes Bank with much-needed financial stability. This allowed the bank to strengthen its balance sheet and resume lending activities.
• New Leadership: The appointment of a new CEO and a revamped board of directors instilled confidence in the bank's future direction. The new leadership team is focused on cleaning up the bank's loan book, improving risk management practices, and restoring its reputation.
• Loan Recovery Efforts: Yes Bank has been actively pursuing the recovery of its non-performing assets (NPAs). Successful recoveries will improve the bank's financial health and profitability.
• Focus on Retail Banking: Yes Bank is strategically shifting its focus towards retail banking, which is considered less risky than corporate lending. This shift is expected to improve the bank's asset quality and diversify its revenue streams.

The Role of Government Intervention and Regulatory Support

Government intervention and regulatory support play a crucial role in shaping the trajectory of both Vi and Yes Bank. The government's commitment to ensuring a competitive telecom market and a stable banking system has a direct impact on the prospects of these institutions. Investors often view government support as a safety net, which bolsters their confidence in the long-term viability of these entities.

Government's Stance on the Telecom Sector

The Indian government recognizes the telecom sector as a vital infrastructure component and is keen on maintaining a healthy competitive environment. The relief measures extended to the telecom industry, such as the moratorium on spectrum payments and the conversion of deferred interest into equity, reflect the government's commitment to supporting struggling players like Vi. This support signals to investors that the government is invested in the success of the telecom sector and is willing to take measures to prevent market consolidation.

RBI's Intervention in Yes Bank's Crisis

The Reserve Bank of India's (RBI) intervention in the Yes Bank crisis was instrumental in preventing a systemic collapse. The RBI's prompt action to supersede the bank's board, impose a moratorium on withdrawals, and orchestrate a rescue plan demonstrated its commitment to safeguarding the interests of depositors and maintaining financial stability. The RBI's oversight and guidance continue to be crucial for Yes Bank's recovery.

Psychological Factors Influencing Investor Behavior

Beyond the financial and regulatory aspects, psychological factors significantly influence investor behavior towards Vi and Yes Bank. Cognitive biases, emotional attachments, and herd mentality can lead investors to maintain their positions even when faced with adverse news. Understanding these psychological factors is essential for comprehending why people continue to believe in these companies.

Hope and Optimism Bias

Hope is a powerful motivator in investing. Investors often hold onto their shares in struggling companies, hoping for a turnaround. This hope is fueled by optimism bias, a cognitive bias that leads individuals to overestimate the likelihood of positive outcomes and underestimate the probability of negative events. Investors in Vi and Yes Bank may believe that the companies are on the cusp of a turnaround, despite the challenges they face.

Loss Aversion

Loss aversion is another psychological factor that influences investor behavior. It refers to the tendency for people to feel the pain of a loss more strongly than the pleasure of an equivalent gain. Investors who have incurred losses on their investments in Vi and Yes Bank may be reluctant to sell their shares, fearing further losses. They may hold onto their positions in the hope of recouping their initial investment, even if the prospects of a recovery are uncertain.

Anchoring Bias

Anchoring bias is a cognitive bias that causes individuals to rely too heavily on an initial piece of information (the