What's Wrong With Yes Bank? | Current Affairs Alert

The company’s stock price plummeted. Investors were clueless as to why Rana was being ousted. Yes Bank’s stocks started shrinking and on 21st September 2018, and the private bank lost Rs. 22,000 Crores in a single day of trading.

That’s when rumours and skeletons started tumbling down the closet. There were speculations that the company was underreporting bad loans. In order to improve the situation, a new CEO was appointed along with a change in management. But despite optimistic assessments, Yes Bank was destined to lose.

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The Yes Bank Crisis - A Brief Timeline

2003 - Rana Kapoor and Ashok Kapur start Yes Bank.
2008 - Ashok Kapur dies during the 26/11 Mumbai terrorist attacks of 2008.
2008 - 2017: Rana Kapoor begins giving loans to poorly performing companies in exchange for taking loan fees upfront, and using that money to run the bank.
2018 - RBI kicks Rana Kapoor out of the CEO position of Yes Bank. During that time, Yes Bank also loses a lot of money.
2019: CEO change - Ravneet Gill. Things go well for a while until RBI slaps Yes Bank with non-compliance, violating money transfer norms and PPI norms.
July 2019: Rana Kapoor takes a loan against his entire stake in the market and then sells it, and then in a few months, sells some of it to the open market.
Nov 2019- Jan 2020: Yes Bank finds a private investor in Hong Kong, however, the deal doesn’t go through. The bank continues to incur a big loss.
March 2020: RBI and government take matters in their own hands. The RBI also asks SBI (State Bank of India) to form a consortium and buy a stake in Yes Bank.

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The Yes Bank Crisis - Why was Yes Bank Destined To Fail?

Decline In The Financial Position: The financial position of Yes Bank has been on a constant decline over the last few years. The private bank was struggling to raise capital and improve potential loan losses and downgrades. This invoked bond covenants by investors, and withdrawal of deposits. The bank was making huge losses and inadequate profits since the last four quarters.
Government Issues: The bank has always seemed to be in the bad books of the government and RBI. For example, the bank continued to under-report its NPAs (Non-performing Assets) which turned out to be INR 3,277 crore in 2018-19. This made RBI dispatch R. Gandhi, former Deputy Governor of RBI, to board the bank.
False Promises: Every time RBI tried to probe the bank, management tried to indicate that they are in talks with various investors and are close to cracking a deal. In reality, the bank was not able to propose a concrete proposal to investors. Hence, no investors were ready to put in the money required to survive and grow.
Non-serious Investors: The bank tried to engage with few PE (Private Equity) firms in order to infuse capital as per the filing in the stock exchange. "These investors did hold discussions with senior officials of the Reserve Bank but for various reasons eventually did not infuse any capital," says RBI. This shows that the investors were not serious enough to put capital in the bank.
No Market-led Revival: The RBI did say that a market-led revival would be a better option as compared to regulatory restructuring. RBI made all type of efforts to facilitate such a process and gave enough opportunity to the bank management to come up with a credible revival plan, which they were not able to materialize.
Liquidity Outflow: The bank was going through severe outflow of liquidity. Deposits are bread and butter of any bank. The bank was witnessing withdrawal of deposits from their customers.

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The Yes Bank Crisis - What happens now?

Impact on employees: In similar cases, when there are distress mergers, the probability of the acquiring entity trying to cut cost or trim or overlapping functions. Hence there are charges that in Yes Bank’s case, some employees might have to let go. But that’s just a thought for now as the call is yet to be taken by the acquirer.

Impact on corporate customers: Companies that have a line of credit from Yes Bank or bank guarantees, may face problems. Hence, corporate clients and SMEs (small and medium enterprises) might seek alternate options to not have liquidity problems.

Impact on retail customers: RBI capped withdrawals within INR 50,000 per account limit till 3rd April 2020. This may impact a certain type of customers, like retirees, who have deposited their life savings in the bank and are withdrawing monthly payment interest. Normal banking transactions like fund transfer, cheque clearances and EMI debits will stay unaffected.

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