THE COLLAPSE OF YES BANK

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 THE COLLAPSE OF YES BANK

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• Rana Kapoor was the co-founder and CEO of the bank. 
• When PM Vajpayee’s government was reforming at a rapid speed between 2002 and 2003, before the ‘India Shining’ period of 2004, they opened up bank licensing to the private sector. Kapoor and his brother-in-law, Ashok Kapur, got the license in 2003, and Yes Bank was launched on 21 January 2004.
• Yes Bank’s decline started after it reached the peak. The peak had made Rana Kapoor arrogant and he began lending to people who were under stress, including the Anil Ambani Group, Dewan Housing Finance Corporation Ltd, and the Zee Group
• These debts started to pile up, and RBI Governor Raghuram Rajan began his clean-up of the banking sector
• His tenure was between 2013 and 2016, and he had figured that banks were understating their NPAs
• The government and banks were unhappy with this, thinking he was revealing too much about the underbelly of credit systems.
• His successor, Urjit Patel, was even tougher on the issue. The RBI found a divergence between what Yes Bank’s claims about its NPAs and what the RBI calculated
• In August 2018, the RBI refused to extend Rana Kapoor’s three-year tenure
• By January 2019, a new CEO had been instituted. Everytime the bank tried to raise its capital by selling shares, more ugly truths about the balance sheet emerged, pushing prices further down.
• In the third quarter of 2019, the Tirupati temple trust withdrew its deposits from Yes Bank worth Rs 1,300 crore.
• The run of deposits out of Yes Bank was so dire that it asked for a postponement of its third quarter results (for FY20) up to 14 March 2020. The RBI knew that if these results came out, Yes Bank would look so bad withdrawals would only go up
• Section 45 of the Banking Regulation Act gives the RBI total powers to take over a bank and change its management. This was used for Yes Bank to remove the management and fix the share price
• Under a rescue plan for Yes Bank, the State Bank of India (SBI) bought a 49 per cent stake in the crisis-hit bank at Rs 10 per share, for a Rs 2 share. This essentially makes Yes Bank a private bank supported by a government bank.
• EXPLANATION OF YES BANK COLLAPSE

1. Promoter Rana Kapoor’s mismanagement of the lending system led to rising NPAs
2. Situation went out of control a few months ago, and RBI kept a strict watch
3. RBI made it clear that the financial position  of the bank has undergone a steady decline largely due to inability to raise capital to address potential loan losses (NPAs)
4. Yes bank was pulled up by the RBI for understating its NPAs more than once In FY’19 alone, it reported a divergence of Rs 3,277 crore in bad loans and Rs 978 crore in NPA provisions. That was alarming for RBI
5. In Q2, FY20, core capital ratio was 8.7%, as against RBI-mandated 8%. With NPAs looming, it would soon fall below 8%. No new investor willing to put in money.
6. Yes Bank’s loan book grew from Rs 1,32,000 crore in FY 2017 to Rs 2,41,000 crore in FY 2019
7. That dramatic increase of Rs 1,09,000 crore or 80% happened in just two years, when Indian banking was struggling!
8. Loan book doubled in 2 years, compared to earlier 17
9. And this happened post-demonetisation and GST – so which firms were so bullish?
10. Or was it simply rotation of funds/loans by firms?

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