One of the greatest shocks to the economy and banking sector was the collapse of the fourth largest bank in India. The failure of Yes Bank is the first instance involving a new-age Private Sector Lender. This eventually led to great losses to those who had borrowed from the bank and were involved in such dealings.
“Building up to the collapse”
The taking over of the RBI can be traced over several months. The trouble started when the Rana Kapoor, the co-founder of Yes Bank began lending to people under stress, including companies such as Anil Ambani Group, Dewan Housing Finance Corporation Ltd, and the Zee Group. This, in turn, had a dire consequence as debts began building up, the then RBI Governor Raghuram Rajan began his policies in order to “clean up the banking sector”. During his tenure, he suspected that banks were understating their NPAs.
After this, the RBI further uncovered and highlighted the disparities between the claims made by Yes Bank and the actual NPA estimates calculated by the RBI. With every quarter, Yes Bank was conceded more NPAs.The Yes Bank made several attempts to increase capital by selling shares, however, these highlighted the more falsities in their balance sheets, push their prices down further. This resulted in the Tirupati Temple Trust to withdraw its Rs 1,300 crore deposit from the bank.
The financial position of the bank has seen a decline due to its own failure to raise capital in order to address potential loan losses and downgrades. This triggered the increasing rate of withdrawal by investors. The bank was unable to make adequate profits in the last four quarters.
The RBI had stated that “it was in constant touch” with the bank’s management in order to strengthen liquidity and its balance sheets over the past few quarters. The Yes Bank authorities made false assurances of potential investors who may help resolve the situation but these held no basis.
The RBI had stated that a “bank and market-led revival” would be more preferable rather than imposing regulatory restructuring and made efforts in this direction to provide the bank with an opportunity to draw up feasible plans, however, even these did not materialize.
“State Bank Intervention”
The pulling out of deposits began increasing to the point that Yes bank had to request postponement of its third-quarter results up to 14 March 2020.
Under the ambit of Section 45 of the Banking Regulation Act, which gives the RBI total powers to take over a bank as well as its management, the RBI took several measures removal of management and fix share prices to Rs 10. Further it also stated that all those who invested in the bank’s 81 Additional tier 1 capital bonds would now have no value. Depositors are only allowed to withdraw up to Rs. 50,000 till April 3, 2020.
Prior to this the central bank, as well as the bank’s shareholders, had awaited tor investors who could have prevented this. These steps were undertaken by the RBI on an emergency basis before 14 March 2020, leading to a regulatory clampdown
For now, Yes Bank has been placed under a 30-day moratorium, superseding the Yes Bank Board. Under Section 36ACA (2) of the Act, the Central Bank has appointed Prashant Kumar as caretaker administrator. Further, the SBIBoard has given “in-principle” approval to invest in the bank.
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