As you already know Coronavirus is the only headline nowadays. The only other news other than COVID-19 is Yes Bank (which covers around 0.5% of the news), and because it seems like everyone in this world has covered about the virus, I thought I’ll have better chances with Yes Bank.
So for a little back story. Yes Bank is a private sector bank in our country, the 5th largest for that matter. And seeing as the number of banks in India seem infinite, 5th largest seems pretty good. This all started 2 years ago, July 2018, when Rana Kapoor was appointed as the CEO and MD again. The investors and the shareholders were all too happy because the bank was doing well, and they hoped it would keep doing well. Mr Kapoor got approval from RBI too (RBI has to approve the new CEOs and MDs) and was on its way to becoming the largest corporate sector bank in India.
All was going well until September rolled in and RBI cut Mr Kapoor’s tenure short to January 31st, 2019. That is not something you want to see as a shareholder, and definitely not something you want to see as an investor. On that one day, Yes Bank lost 22,000 crores in trading. Rumour was that bad debts (when people take loans from banks, but, fail to don’t pay back the loan) were sky-rocketing.
Situations like these lead to public withdrawing their money, as investors, shareholders and as depositors. RBI cannot have this because if people start losing trust in the bank, they’ll stop trusting the banking sector itself, which puts the economy at risk. So, RBI appointed a new CEO, Mr Ranveet Gill. Though Mr Gill tried his level best to change the situation around, he couldn’t succeed. He announced the names of many companies who were ready to invest in the bank, but the names kept changing, and nothing was ever confirmed. The damage was done.
What we need to understand here is, Yes Bank, as a marketing strategy, started giving out loans to those companies which were not getting them from other banks, because their credibility was not great. The companies were surely amazed at the idea of getting loans from Yes Bank and they seized their opportunity. A lot all these companies, which took a loan from Yes Bank, went bankrupt, which means that Yes Bank never got to see that money again.
Around October-November of 2019, the 2nd quarter financial statements of the banks are released, and they were bad. It was worse than anyone had speculated. Yes Bank only had a few options now. Either they could the safety money, but it was already spent. Or they could give out loans. So for that one needs to have money to be able to give that to someone else as a loan, which was very clearly lacking here. They could borrow from NBFCs (Non-Banking Financial Companies). But, after the IL&FS fiasco (IL&FS, an NBFC was committing a fraud no one knew about until 2018, when all the frauds and scams were surfacing due to GST and Demonetisation, due to which banks stopped taking loans from NBFCs), It was not the best idea.
The last option was to sell the Bank or at least a part of it, and that’s exactly Yes Bank did. They sold the stake of the bank for 2,000 crores. That most definitely did not solve the problem. They still needed 3 billion more.
2020, RBI got fed up with this and took charge of the situation. It put the bank under moratorium (suspension of further activities) and dissolved the Board. So they got a new MD to the party, got a reconstruction plan ready for execution, which by the way is Cabinet approved, and got going. This was all done in a very short period to protect the interest of the public. Not only this, but they also gave a good chunk of the ownership of the bank to SBI. SBI bought 49% of the shares for 100 bucks each, which totalled up to 11,760 crores. Other banks like ICICI. AXIS Bank, Kotak Mahindra, and our own, beloved bank – HDFC, also pooled in.
Now, as a part of the plan, the depositors were only allowed to withdraw 50,000 bucks per month, just to keep a steady flow of cash. This has now thankfully ended, much to the relief of the depositors. The moratorium has also been lifted, but Yes Bank is still under the watchful eyes of RBI, and a couple of other banks which invested in it. Yes Bank is steadily standing on its own but it will take a long time before it is properly on its feet. There is also a case filed against Mr Kapoor (the ex-CEO), which is currently going on, but that’s a piece of news you guys will have to read for yourself.
P.S.: Don’t forget to wash your hands, practice social distancing and stay safe!