5 Reasons Behind the Downfall of Yes Bank
Yes bank was set up by top-notch professionals. Reserve Bank of India superseding the board of a commercial bank, the central bank has taken charge of private bank Yes Bank. The RBI last move to give a banking license to professionals was when it gave a license to Global Trust Bank, which merged with Oriental Bank of Commerce over the bad governance issues.
What is wrong with Yes Bank? These are the five main reasons why the RBI superseded the Yes Bank board.
- Casual Investors
Yes bank was engaged with some private equity firms for exploring opportunities to instill capital as per the filing in stock exchange in February 2020. "These investors did hold discussions with senior officials of the Reserve Bank but for various reasons eventually did not infuse any capital," says RBI. It shows that the investors are not severe enough to invest the capital into the bank. Actually, the capital size would have given a significant stake to the new investor (s) where RBI's permission is compulsory.
- Deteriorating Financial Position
Over the last few years, Yes Bank financial position has undergone a steady decline because of its inability to raise capital to address potential loan losses and resultant downgrades, prompting invocation of bond covenants by investors, and deposits withdrawal. Yes bank was making losses and insufficient profits in the last four quarters.
- False Assurance
The Reserve Bank was in constant touch with the Yes bank's management to help strengthen its balance sheet and liquidity. Yes bank management showed the Reserve Bank that it was in discussions with various investors and was likely to be successful. But actually, there was no real proposal from investors to invest money that the Yes bank needed to survive and grow.
- Governance Issues
In recent years Yes bank also experienced severe governance issues and practices which led to a steady decline of the bank. For instance, the Yes bank under-reported NPAs to the tune of Rs 3,277 crore in 2018-19. That provoked RBI to dispatch R Gandhi, a former Deputy Governor, to the board of the bank.
- Outflow of Liquidity
The bank was facing outflow of liquidity regularly. Yes bank was observing the withdrawal of deposits from customers. In reality, the deposits are bread and butter for any bank. At the end of September 2019 Yes bank had the deposit book of Rs 2.09 lakh crore.