The board of Yes Bank was superseded by the Reserve Bank of India, in an effort to save their sinking ship. In fact, the bank’s state has deteriorated so much that the shares of the banks have declined by a whopping 85%, and the bank has been dropped from the Nifty and Sensex as well.
The RBI also announced that there will be a cap on the withdrawal of deposits, which will be up to Rs. 50,000 unless a few exceptional rules.
However, today we will be looking at how this happened, and why Yes Bank is so far down in the drains that the Government has to come to its rescue.
Bad Loans Issued By Yes Bank Turned Into NPAs
Yes Bank has had its share of bad luck when it decided to invest in some companies that went on to fail, such as Jet Airways. Some other failures of the banks are IL&FS, Dewan Housing, Jet Airways, Cox & Kings, CG Power, Cafe Coffee Day, Altico, etc.
The bank gave out loans that soon turned into NPAs. For those who don’t know, NPAs are just loans or an advance payment granted by banks for which the principal amount or interest remains overdue for a period of 90 days or more. Yes Bank indulged in quite a few of these, causing the bank to decline.
Governance Issues And Practices
As confirmed by the RBI, the governance of Yes Bank is very much at fault. It was under scrutiny for a long time as the bank did not report the true values of NPAs, and the bank’s CEO Rana Kapoor has had his name dragged through the mud.
Additionally, there have been quite a few resignations from board members of the bank – Ashok Chawla, Vasant Gujarathi & Rentala Chandrashekhar, which led to the bank’s inability to raise capital.
Inability to raise capital
The bank was unable to raise sufficient money to meet the capital required, which is mostly due to the bad investment and loans given out by the bank.
High Risk Money Lending
As per reports, the bank has been lending money to entities who were unable to raise any from anywhere else.
No Investors
Given the deteriorating state of the bank, there were no investors ready to put in money, which led to further failure of the bank. There are reports to suggest that the faulty governance was to blame for this too. There have been no solid proposals from any investor, despite the many attempts made by the bank for its revival.
Outflow of Liquidity
The worsening state of the bank was very much in sight, causing huge amounts of withdrawals from the bank. As everyone knows, depositor’s money is what keeps a bank going. As that started going in reverse, the bank started declining, leading to government intervention.
All in all, the domino effect of the deterioration of the bank is quite evident, and we wonder if Yes Bank will be able to rise with the help of the government and the taxpayers’ money. It’s wait and watch till then!
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