Why Yes Bank is in Crisis?

One of the most successful banks, Yes Bank has recently fallen into sudden crisis. The winner of the “Sustainable Bank of the Year Asia/Pacific” Award, held in London on June 16, 2011, is temporarily on moratorium. Founded by Mr. Rana Kapoor and his partner Mr. Ashok Kapur in the year 2004, with almost 18,238 employees, Yes Bank gained trust of lots of people, who, in the current catastrophe, are the most affected. After the crisis, RBI has taken over Yes Bank, to help its administration, and to find a solution to this crisis, it has restricted withdrawals to a maximum of Rs. 50,000, sending its customers into a wave of confusion and panic. Shares have been falling ever since the last year and continue to fall till date.

yes bank branch

There are numerous events that led to the current crisis, Yes Bank is facing. Some of them are listed below:

  1. It went on a loaning spree with advances rising by 334% between Financial Year 2014 and 2019
  2. Many borrowers started defaulting the bank’s gross non-performing asset percentage, which is the percentage of loans overdue for more than 90 days, zoomed to 7.39% as of September 2019, the highest among comparable banks.
  3. While bad loans piled up, the bank did not make enough provisions in its profits. Its provisions were the lowest among comparable banks
  4. Customers withdrew large amounts, resulting in the credit-deposit ratio crossing 100% in 2018-19. That is, it lent more than it received.
  5. Loan spree and high NPA meant poor profitability, gauged by Yes Bank’s sinking Return on Assets.
  6. The bank’s stock price fell steadily in the past year
  7. The founder of Yes Bank, Mr. Rana Kapoor and his family were recently accused of money laundering regarding Yes Bank. It is said that the Mr. Rana Kapoor helped his daughters’ companies to get a loan from Yes Bank which was not intended to be paid.

The family was questioned for a long time by the   Enforcement Directorate (ED). They are under close scrutiny by the Enforcement Directorate and the Central Bureau of Investigation. The CBI has alleged that Dewan Housing Finance Corporation’s (DHFL’s) promoter Kapil Wadhawan gave kickbacks in the form of builder loans to DOIT Urban Ventures.

RBI’S PLAN FOR REGENERATION OF YES BANK

After the scandal of Rana Kapoor and his daughter, RBI has handled the administration of Yes Bank and is trying to restore it back to its position with the help of SBI.

To firm up the plans of Yes Bank’s reconstruction a meeting was held between RBI governor Shaktikanta Das and SBI chairman Rajnish Kumar on 9th March. Liquidity support from the RBI for Yes Bank is also on the anvil, the RBI liquidity line could be against a pledge of securities of a similar value. The details are being worked out.

RBI-appointed administrator Prashant Kumar confirmed that Yes Bank had the support of RBI and SBI. “We have full support from the RBI as far as liquidity is concerned. There is no issue whatsoever,” he said.

SBI has invested Rs. 6050 crores on Yes Bank along with other banks to help it recover. With the co operation of customers and employees RBI plans to restore Yes Bank to its positions as soon as possible.

FUTURE AND FORECAST

The bank made a record loss of Rs 18,560 crore in the quarter ended December, largely as new management stepped up recognition of NPAs and set aside Rs 24,766 crore as provisions for bad loans. More importantly, the bank has guided for another 5% slippages during the year, which means the worse is not over yet.

Though going through a difficult crisis, Yes Bank has made sure to not cause their customers any discomfort of any kind. Currently the shares of Yes Bank have been low but they are expected to become stable soon. With the moratorium lifted, Yes Bank exercises its full range of services, though it is yet to fully recover from the loss.

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