Yes bank crisis

CASE STUDY: YES BANK CRISIS
Submitted By:
Hemanth Tunuguntla
Submitted To:
Tanya Malhotra – 23584

INTRODUCTIONTO BANKING:
A bank is a financial institution which is licensed to receive
deposits from its customers and make loans out of it. It also
provides many financial services such as currency exchange,
wealth management etc.
These banks play a vital role in the economy of the country as
it provides services to both customers and businesses. And
mostly the banks in many countries are governed by national
government or central bank.
Bank also provide the credit to people and corporations through
the deposits and lend it as a loan by charging more interest as a
profit same as other businesses. In most of the banks the
shareholders are the owners of the bank. As an example, bank
provide 1% interest on the savings account and charges 6% on
loans as they can make 5% as profit.
As the savings from the customers are combined to form a big
pool of money and that money are used by the bank to make
the loans and that’s why banks have the obligation not to take
big risks while making loans.
In today’s world banking has become the backbone of the
country’s economy as it works in the contribution of the
financial stability, as it is highly regulated in most of the

countries. The main primary job of the bank is to mobilize the
money from the individuals and lend it as to keep economy
stable and floating.
Banks are categorised into two types mainly public and private
sector. Public sector banks are those in which maximum of the
shares are held by the government. Private sector banks are
those in which majority
stake is with the private shareholders. Whereas theinterest rates
are offered are same, but the private sector bank provide a
better service as compared with the public sector however they
charge extra for it.
The main role of the banks is to act as a intermediary between
the people and helps in economic development and capital
formation and also to raise the standard of living.
YES BANK
INTRODUCTION:
Yes Bank Ltd. is now an Indian public bank with its
headquarterslocated in Mumbai, Maharashtra and was founded
by Rana Kapoor in the year 2004 with an aim to Experience the
Expertise. It offers a wide range of services to its customers like
consumer banking, corporate banking, mortgage loans and
private banking etc.
Before March 5th
, 2020 Yes Bank is one of the India’s largest
private sector bank with its founder Rana Kapoor and his highly
competent team which aims for “Future Businesses of India”.

From 2003 it has adopted international best practises and with
the highest standards and very good service quality.
It offers financial solutions to all its customers and it has also
received various recognition for its payment solutions and its
infrastructure. And it has almost 570 branches across the
country.
On March 5th
, 2020 Reserve Bank of India (RBI) has taken the
control of the Yes Bank which had numerous unpaid bad loans
to avoid the collapse of the bank as the same happened with the
case of Punjab National Bank (PNB).
Yes Bank has a revenue of about 254.91 Indian rupee and
almost equal to $3.6 billion dollars with an asset of Rs 3 trillion
Indian rupee and more than 18,000 employees working for it.
2020 MORATORIUM
Long Queues, Desperate Depositors and the bank which have
claimed to have made India say YES was told an emphatic NO
by the RBI. On March 5th
, 2020 the Reserve Bank of India
announced a dramatic move that asked the centre to impose
moratorium on Yes Bank and the bank board of directors were
superseded by RBI
The account holders were told that they can only withdraw with
Rs 50,000/- from their account till April 3rd
, 2020.
Some exceptions were allowed for emergency situation like
medical, education, marriage & unavoidable emergency and
the lender was told that it can’t grant or renew any loans or
make an investment however salaries to yes bank employees

and rents were not stopped and this came just six months after
similar action against Punjab National Bank & Maharashtra
Co-Operative Bank.
The decision was motivated by the banks deteriorating
financial condition and the RBI lost faith that the bank would
be able to raise enough capital to cover potential loan loses i.e.,
debt which is not likely to be repaid and also said that the
private lender was unable to find investors to infuse fresh
capital.
This combine with the withdraw of the deposits meant a bad
financial position. The central bank also cited central
governance issues and practises causing steady decline of Yes
Bank.
Following the announcement as panic depositors rush to ATMS
and Bank branches and the authorities try to pacify them. And
the RBI said that the public will see very swift action from RBI
to revive the Yes Bank. And the Finance Minister of India also
told that the Govt also assure that every depositor that their
money shall be safe.
However, the drama was not yet over, following the RBI
investigating agencies swung into action the Enforcement
Directorate raided Yes Bank founder Rana Kapoor Mumbai’s
Residence.
Then he was arrested and then he was found arrested over
money laundering suspicion and CBI booked him for the loans
offered to the Dewan Housing Finance Ltd.

Meanwhile the RBI has unveiled the revival plan for the Yes
Bank and SBI has agreed to invest in Yes Bank. Under the
reconstruction scheme the State Bank of India may buy a 49%
stake in Yes Bank and with the current shareholders expected
to end up earning 11% and other investors may be brought into
purchase for the remaining 40%.
And the SBI chairman also notified that if SBI went solo and
take up the 49% stake and then the immediate investment is
2450 crores. The RBI will also extend the loan of rupees 10,000
crores to Yes Bank.
Meanwhile one provision in the plan has passed a controversy
that RBI has proposed that additional tier-1 bonds will be
returned down completely as this may cause a loss of rupees
8800 crore to the bond holders. Another fall-out that Yes Bank
customers must figure out is that if they pay EMI’s from their
account they might need to seek a window of time to make
alternate arrangements if needed.
Yes Bank was once India’s Fifth largest Private lender as it
grew 26 times in size since its inception in 2003.And the banks
outstanding loan grew from Rs 55,000 crore (2012-14) to Rs
2.41 Trillion in (2018-19). The troubles began in the last few
years and RBI report for (2014-15) said that Yes Bank has
underreported bad loans by Rs 4,177 crores.

Finally, in September-2018 the founder of Yes Bank Rana
Kapoor was told by RBI that he won’t be allowed to continue
as Bank Chief beyond January 2019, and it shares began sliding
and the Yes Bank couldn’t have come with a more difficult
time. With the world facing with Economic slowdown and the
COVID-19 making the matters worse.
The latest crisis may further impact the liquidity in India and
make it more difficult for the authorities to boost economic
sentiment.
PROBLEMS FACED BY YES BANK:
RBI has placed Yes Bank under moratorium. As the advances
of the bank went on up to 334% in (2014-2019). Many
borrowers started defaulting as the banks Non-Performing
Assets (NPA) i.e., the percentage of loan that is overdue more
than 90 days is zoomed to more than 7.39% as of September-
19 the highest among the comparable banks.
While the bad loans piled up the bank did not make any enough
provision in its profits. Its provisions were the lowest among
the comparable banks of almost 43.1%.
Customers with drew large amounts resulting in the credit
deposit ratio crossing 100% in (2018-19) i.e., it lent more than
it received.
Loans and high NPA result in poor profitability gaged by Yes
Bank synching return on assets. The bank stock price fell
steadily in the past year from Rs. 367.9 to Rs. 16.2 and the bank

has also experienced serious governance issues and practises in
the recent years which have led to steady decline in the bank.
1. Bad Loans.
2. Sluggish Economic Sector.
3. Governance issue.
4. False Assurance
5. No Market led Revival Insight.
6. Out Flow of Liquidity.
7. Deferring regulatory restructuring.
8. Deteriorating Financial Position
9. High Withdrawals.
1. Bad Loans:
Yes Bank is a public bank and private bank before march
2020 is a medium sized which ran into troubles in the year
(2017-18) which led to the sharp increase in its impaired
loans ratio and after the quarterly loss in April 2019 the
bank didn’t inform the Govt. or the RBI regarding it and
it failed to raise the capital.
2. Sluggish Economic Sector:
Amount deducted towards loans and premium payment
will be impacted if it is higher than Rs. 50,000/- It will
have an impact on the customers whose salary account is
linked to Yes Bank. The possibility of renewing or
granting loan and making investments by the bank will
reduce.

3. Governance Issue:
The bank has also experienced serious governance issue
in the past years that led to its downfall. According to the
reports the NPA are almost 3200 crores.
There was a steady decline in the bank due to the
governance issue are likely underreported NPA’s.
4. False Assurance:
The bank management indicated to the Reserve Bank of
India (RBI) that it wasn’t talks with various investors and
they were likely to be successful. But it seems there was
no concrete proposal from the investors. So, the non-
serious investors there by, the few private equities which
were about exploring opportunities to infuse capital
investors were not serious enough to put the capital into
Yes Bank and therefore these problems were happening
5. No Market Led Revival in sight:
This giving an adequate opportunity to the bank
management to draw a credible revival plan but, that did
not materialize.
6. Outflow of Liquidity:
More importantly there was a constant outflow of the
liquidity.
The bank was facing the regular outflow of the liquidity
that is the bank was addressing the withdrawal of deposits
from the customers at a regular basis.

The Yes Bank shares are down by over 50% after when
the RBI has put the bank under Moratorium. The bank
which has valued more than 10,000 crores may actually be
sold at 500 crores after the shares are down and the orders
passed by Ministry of Finance.
7. Deferring Regulatory Restructuring:
The problems of the bank were known. The found of the
bank was asked to step down by RBI. As per the reports
the central bank had flagged several concerns in the
recent years, including a distinct divergence between the
bank financials and the RBI findings.
8. Deteriorating Financial Position:
As the bank was making loses and inadequate profits in
the last four quarters so the inability to raise capital to
address potential loan loses
9. High Withdrawals:
The bank’s financial condition made many depositors
from keeping their funds in the bank over a long a period
of time. It also noticed the slow steady withdrawal of
deposits and the bank has a deposit of almost 2.09 lakh
crore at the end of the Sept-2019.
RESTRICTIONS ON YES BANK:
Yes Bank will not grant or renew any loan or advance, make
any investment, incur any liability or agree to any payment

in discharge of the liabilities and obligations except for the
payments towards the bills already received.
The bank will not enter into any agreement or compromise,
or transfer or otherwise dispose of any of its properties or
assets.
And RBI has also informed that the existing shares held by
the investors with over 100 shares has a three-year lock
down.
ACTIVITIES ALLOWED FOR YES BANK:
Bank can incur expenditure like salaries of employees, rent,
rates and taxes, printing, stationery, legal expenses not
exceeding of Rs. 50,000 in each case or any other expenses
necessary for carrying on its day-to-day administration.
Yes Bank has also been allowed to release or deliver goods
or securities which have been pledged, hypothecated or
mortgaged to it against loans availed by the borrowers.
And RBI has also informed that the existing shares held by
the investors with less 100 shares can sell it.
PROBLEM OF YES BANK:
For Yes Bank the problem is that the bank is struggling with
a very low capital ratio. It recently raised 275 million dollars
by selling its shares to the domestic and the foreign investors
in a Qualified Institutional Placement (QIP).

While this have a crisis and it may need the funds later. With
the market cap more than 9,000 crores no solid investor in
the sight and no other is ready to merge with it and the only
way out is Reserve Bank of India (RBI).
IMPACT ON SHARE MARKET:
The bank shareholders would surely be the biggest losers.
The impact of Yes Bank crisis on equity markets has been
sharp with benchmark indices BSE Sensex and NSE Nifty
50 falling almost 3%.
Shares has been tumbled about 85% after RBI imposed on it.
This is its biggest intra fall ever.
They also include LIC which also holds the 8% stake and
mutual funds such as Nippon Life, Franklin and UTI asset
management.
For someone who is fully invested, he has to hold it out and
not panic and get out of the market these levels. This is not
the bottom as the situation is evolving on a daily basis. As
the earnings of the Yes Bank has fallen down but after SBI
has announced to invest there is a 10% rise in the value of
the share.
The government has to bail out some specific sectors as this
is happening globally and they have to come out and they
have to provide to the sectors that have impacted directly.

And on September 2018 Yes Bank has taken loan from eight
international entities in Taiwan and Japan which in turn led
into small and medium scale industries and large corporates.
Under the Deposit Insurance and credit trust under the crop
act 1961, if the bank collapses, deposit amount up to 5 lakhs
will be safe. In the budget session in February this year the
bank assurance was increased from 1 lakh to 5 lakhs.

The Yes Bank share value as on 19-03-2020 after which RBI
has lifted the moratorium. After this upliftment from the RBI
the market of the Yes Bank still faces the crisis as the
investors are taking out the money and the outflow of the
liquidity is high.
REVIVAL SCHEME FOR YES BANK:
As SBI announced that it would invest in Yes Bank and help
in its revival with other few private investors. It would
arrange equity capital of around 20,000 crores and 30,000
crores of bulk deposits and Certificate of Deposits.
While there are some domestic financial institutions which
are open for the participation for the equity infusion, but they
are yet to give their commitment. They will probably decide
after this upcoming Saturday when this Yes Bank comes out
with Q4 results.
FINANCIAL EXPERT VIEW:
It has been recognized amongst the top and fastest growing
investors in various aspects by the Global advisory firms.
The Yes Bank management is so optimistic that it would be
able to raise $1.2 billion by the end of April. If the things go
as per plan the move should address some apprehensions in
the private lenders as they are in concern.
And they believe that the Yes Bank sale could be of more
than 30% if RBI approves the deal of Yes Bank.

And the government says uncertainty remains high as the
bank reported some loses and showed a weakling asset
quality in the previous quarter.
CONCLUSION:
Lastly, our opinion is that as far as the banking crisis is
concern it is our suggestion as the taxpayers that the govt.
should be ready for the next round and the iteration of the
financial crisis. While we do not want to notify, that we have
nothing to do as the facts that were provided are also
examined and the moves were to take to tackle the problem
thereby leaving it to the govt. to make the informed
decisions. To conclude, this the bad debts problem in India
is very bad and hence, is better to be forewarned rather than
being caught by surprise.
REFERENCES: (Websites)
Yes Bank official Website (https://www.yesbank.in/)
The Economic Times (https://economictimes.indiatimes.com/)
The Print (https://theprint.in/)
Money Control (https://www.moneycontrol.com/)
Live Mint (https://www.moneycontrol.com/)
Up Stox (https://pro.upstox.com/#/0)

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