The budgetary situation of Yes Bank Ltd. (the bank) has experienced a consistent decrease generally because of the powerlessness of the bank to raise money to address potential advance misfortunes and resultant minimizations, activating conjuring of bond contracts by speculators, and withdrawal of stores. The bank has additionally experienced genuine administration issues and practices in the ongoing years which have prompted consistent decay of the bank. The Reserve Bank has been in steady commitment with the bank’s executives to discover approaches to fortify its monetary record and liquidity. The bank the executives had shown to the Reserve Bank that it was in chats with different financial specialists and they were probably going to be effective. The bank was additionally connected with hardly any private value firms for investigating chances to inject capital according to the documenting in stock trade dated February 12, 2020. These speculators held conversations with senior authorities of the Reserve Bank yet for different reasons, in the long run, didn’t mix any capital. Since a bank and market drove restoration is a favored choice over an administrative rebuilding, the Reserve Bank put forth all attempts to encourage such a process and gave sufficient chance to the bank’s administration to draw up a valid recovery plan, which didn’t emerge. Meanwhile, the bank was confronting a standard surge of liquidity. Subsequent to thinking about these advancements, the Reserve Bank came to the end that without a dependable restoration plan, and out in the open intrigue, what’s more, the enthusiasm of the bank’s investors, it had no other option however to apply to the Focal Government for forcing a ban under area 45 of the Banking Guideline Act, 1949. In like manner, the Central Government has forced ban successful from today.
The Reserve Bank guarantees the contributors of the bank that their advantage will be completely secured and there is no compelling reason to freeze. Regarding the arrangements of the Banking Guideline Act, the Reserve Bank will investigate and draw up a plan in the following not many days for the bank’s reproduction or amalgamation and with the endorsement of the Focal Government, set up a similar well before the time of ban of thirty days closes so the contributors are not put to hardship for an extensive stretch of time.
Is it unexpected?
On March 2019 former RBI Deputy Governor R Gandhi as an additional director on its board The RBI action had come after two consecutive years of the bank having been found of under-reporting its stock of NPAs (non-performing assets). NPA is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days. NPAs are not the only problem for YES bank but also for the recent banking crisis. Finance Minister Nirmala Sitharaman on the announced upfront capital infusion of Rs 70,000 crore into public sector banks, a move aimed at boosting lending and improving liquidity situation. Because the banking system is the backbone of the economy especially while facing economic slowdowns.
What is the problem?
There is a huge problem in banking and financial systems, particularly in banks and NBFCs. It is there in private sector banks and public sector banks and certainly in cooperative banks too. We had seen in the past that how CEOs like Chanda Kochhar in ICICI and Shika Sharma in AXIS banks faced governance issues. It is because of such mismanagements by the top management and CEOs that the entire system remains crisis-ridden. Till now there are 14 public banks that went bankrupt, the collapse of IL&FS, IDBI bank, PMC bank, Reliance capital, DHFL ALTICO went into a mess and there are more of these kinds of the mess yet to come out from banking and financial sectors. We also saw a huge expose of governance issues in YES bank and finally leading to the exit of Rana Kapoor. As of March 2018, provisional estimates suggest that the total volume of gross NPAs in the economy stands at Rs 10.35 lakh crore and rising. The system went into a mess because of political interference and meddling in the functioning of the banks. And also by the poor regulation and supervision by the regulator RBI.
There has been a huge loss in public money in the process. In the last 3 years, the government has pumped in over 3.5 lakh crore to recapitalize public sector banks whose capital got eroded by these kinds of NPAs. The founder Rana Kapoor had a career in a number of foreign banks and then came to India and got the license in 2003 he had a 26% share in YES bank. Because of the aggressive fund rising and the wholesale lending YES bank became the 4th largest private bank in India. YES bank said Yes to all the bad boys of the Indian banking system, IL&FS, Dewan Housing, Jet Airways, Cox & Kings, CG Power, Cafe Coffee Day, Altico-name a bad boy of Indian financial services sector and you are likely to find YES Bank as a key lender. Their lending had increased from 55,000 in 2014 to 2, 44,000 lakh crore in 2019.
The whole mess
Even the Reserve bank of India had been a mute spectator to an extent, In 2015–16 Yes bank involved in huge corporate and regulatory violations. It had been indulging in lots of reckless lending and there was a manipulation of financial statements. When this issue came into the form Reserve bank did not take any action. But in Sep 2018 RBI refused to extend the tenure of Rana Kapoor as a CEO of YES Bank and he finally exited in April 2019. Thus reserve bank did not take timely action when it was needed to be taken. As a result of these kinds of malpractices, mismanagement, and misconduct of Rana Kapoor huge damage got done. Today the bank is fighting for survival. The bank’s financial position is precarious, Lack of liquidity, shortage of capital, losses are arising and NPAs arising.
In its last report of September 2019 YES bank reported a loss of 600 cr and in the financial year 2020 so far there has been a rise of NPAs such that 30,000 worth loans are today questionable. They are unable to raise any further capital to sure up its finances even the new CEO desperately trying to raise capital of about 2 Billion dollars but no investor whether domestic or foreign are now willing to invest in the bank with such a precarious position in order to protect the depositors interest and also a failure of the bank to come up with any kind of revival plan.
Finally, Reserve bank superseded the board of YES bank by doing that it has put the bank in Moratorium. This is the first time we are witnessing a large private sector bank going to the moratorium for a period of 30 days. Within 30 days that the reserve bank will come up with a revival plan for YES bank that includes some kind of restructuring, an amalgamation of the bank or some fund rising such that. Reserve bank rightly says they are doing this in order to protect depositor’s interests. Former CEO of SBI is the in-charge of YES bank now. During this period if you’re a depositor of YES bank you can withdraw the maximum of 50,000 rs only from your account in case of extraordinary circumstances like medical needs or marriage 5,00,000 rs can be withdrawn.
Common man’s expectation
In the case of YES bank, Depositor’s interest is protected by the Reserve bank that will ensure that there is no panic in the banking system. But the shareholders of YES bank facing huge erosion in their wealth. The most important thing is that this is not the end. There could be a lot more hidden NPAs in the banking system. When a whole body is in need of treatment in
When there is a clear indication that the entire banking sector needs a severe treatment. No point in treating it as a company-specific problem. And this banking sector plays a very important role in the current economic slowdown. It’s a very important time for the government to come up with a sector-wise revival plan to regain the trust of a common man on the banking system