What is YES Banking problem, What is YES Banking crisis, Yes Bank crisis explained, YES News from the Bank, YES Future of the Bank
On March 5, 2020, the Reserve Bank of India (RBI) imposed a 30-day moratorium on YES Bank, replaced the board of directors of the private sector lender and appointed Prashant Kumar, who served as CFO and Deputy Managing Director of State Bank of India (SBI), as a director. Under the moratorium, deposit withdrawals were capped at Rs 50,000 per person. The central bank has proposed a reconstruction plan under which SBI could take a maximum stake of 49% in the restructured capital of the bank. Analysts believed the new leadership of YES Bank, led by former Deutsche Bank India director Ravneet Gill, who joined the bank in early 2019, could turn around. Gill, however, struggled to do so.
A brief history of YES Bank
YES Bank Ltd operates three units – YES Asset Management Services, YES Capital and YES Bank. Once the fifth-largest private lender in the country by market capitalization, YES Bank was founded by Rana Kapoor and Ashok Kapoor in 2004. In 2005, the bank entered retail banking with the launch of the International Gold debit card. and Silver in partnership with International MasterCard. In June 2005, YES Bank made a public offering and its shares were listed on the stock exchange. The bank was ranked number 1 bank in the 2008 Business Today-KPMG Best Banks annual survey. YES Bank was the first institution in the world to receive funding through IFC’s managed co-loan portfolio program and the first Indian bank to obtain a loan under IFC’s A / B program. loan facility. In September 2014, YES Bank announced that it had received a rating upgrade from the ICRA rating agency and CARE for its various long-term debt programs. On December 18, 2017, YES Bank entered the 30-share S&P BSE Sensex. A few months later, YES Bank announced the listing of the bank’s first $ 600 million bond issue under its first $ 1 billion MTN program in the Global Securities Market (GSM) – the first Indian capital raising platform for international investors in any currency located in Gujarat. International Finance Tec-City (GIFT City) IFSC.
In December 2017, the bank’s branch network stood at 1,050 and its ATM network at 1,724.
What led to a crisis at YES Bank?
The bank’s loan portfolio as of March 31, 2014 stood at Rs 55,633 crore and its deposits at Rs 74,192 crore. Since then, the loan portfolio has grown to nearly four times more, to 2,250 billion rupees as at September 30, 2019. While deposit growth has not kept pace and increased by less than three times to reach 2 10 trillion rupees. The quality of the bank’s assets also deteriorated and came under the scrutiny of the RBI regulator. YES Bank has substantial exposure to several distressed borrowers, including the Reliance group led by Anil Ambani, DHFL and IL&FS. The tipping point came when one of the bank’s independent directors, Uttam Prakash Agarwal, resigned from the board in January 2020 citing governance issues.
Here are several reasons for the new age private banking crisis
1. APM: YES Bank encountered difficulties following central bank asset quality reviews in 2017 and 2018, which led to a sharp increase in its bad loan ratio and the discovery of significant governance gaps. which led to a complete change of management. The bank then struggled to resolve its capitalization issues. YES Bank experienced a dramatic doubling of its gross NPAs between April and September 2019 to reach Rs 17,134 crore.
2. NBFC crisis: The crisis in the shadow banking space in India started with the dismantling of Infrastructure Leasing & Financial Services (IL&FS) and then spread to Dewan Housing Finance Limited (DHFL). YES Bank’s total exposure to IL&FS and DHFL was 11.5% in September 2019. As of April 2019, the bank had classified approximately Rs 10,000 crore of its exposures, representing 4.1% of its total loans under supervision, as potentially non-performing. loans over the next 12 months.
3. Governance issue: YES Bank faced several governance issues that led to its decline. On January 10, independent director Uttam Prakash Agarwal resigned citing deterioration in corporate governance standards and the lender’s non-compliance. In 2018-19, the bank underreported NPAs to the tune of Rs 3,277 crore, prompting the RBI to send R Gandhi, one of its former deputy governors, to the board of directors of the Bank. Rana Kapoor, who was instrumental in building YES Bank from scratch, was asked to step down as CEO in January 2019.
4. Excessive withdrawals: YES Bank’s financial condition has deterred many depositors from holding funds in the bank for the longer term. The bank has shown a regular withdrawal of deposits, which has strained its balance sheet and added to its woes. The bank had a deposit book of Rs 2.09 trillion at the end of September 2019.
What action has the RBI taken against YES Bank?
– RBI took over the management of YES Bank
– The central imposed a moratorium on the lender
– RBI announced a âScheme of Reconstructionâ project which involves SBI investing capital to acquire a 49% stake in the restructured private lender.
Why was a moratorium imposed on YES Bank?
The banking regulator, while recommending a moratorium, cited a steady decline in YES Bank’s financial position, mainly due to the lender’s inability to raise sufficient capital to fund potentially non-performing assets. This failure led to downgrades by credit rating agencies, which made raising capital even more difficult. Other than that, there were serious deficiencies in the corporate governance of the bank.
How does a moratorium work?
A moratorium is a temporary suspension of activity until future events warrant lifting the suspension or the related issues have been resolved.
In the case of YES Bank, the RBI has imposed a one-month moratorium that is expected to end on April 3.
Therefore, a client can withdraw a maximum of Rs 50,000 during this period from their savings or checking account or any other deposit account. In the event that a depositor has more than one deposit account with YES Bank, the moratorium will apply cumulatively to all of their accounts. There is a little relief for depositors in an emergency. RBI said up to Rs 5 lakh could be withdrawn for medical emergencies, higher education expenses, payments for marriage, other ceremonies and “inevitable emergencies”.
What future for YES Bank?
The RBI has a draft reconstruction plan for YES Bank that proposes that depositors’ funds be protected. Employees would also benefit from the same conditions of service, including remuneration, for at least one year. However, in the case of key management personnel, the new board would be empowered to take a call.
The SBI, which has received board approval to invest in YES Bank, will take a 49% stake, according to the program, at a price that is not less than Rs 10 for each share with a par value. of 2 Rs.
SBI cannot reduce its participation below 26% before the expiration of a period of three years from the date of the capital injection.
Who is Rana Kapoor and what is the case against him?
Rana Kapoor is co-founder and former Managing Director and Managing Director of YES Bank. Born in 1957 in Delhi, Kapoor began his professional career as a junior banker in the Barakhamba branch of Bank of America in New Delhi. He worked with BoA for 16 years. In 1998, Rana Kapoor joined her brother-in-law Ashok Kapur and Harkirat Singh to form Rabo India Finance. Kapur, Kapoor and Singh sold their stake in the company in 2003 and were granted permission to set up a private sector bank (YES Bank). Kapoor had a good network in the corporate sector and he found his place in companies that had difficulty obtaining financing from other existing lenders. In September 2018, he was invited to step down as president of YES Bank and was replaced by Ravneet Gill.