Why did Yes Bank
collapse?
In a rare case of Reserve
Bank of India superseding the board of a commercial bank in recent
history, the central bank has moved in to take charge of new generation private
bank Yes
Bank. Interestingly, the bank was set up by top-notch
professionals. The last such move by the RBI to give a banking license to
professional was when it gave a license to Global Trust Bank, which was
eventually merged with Oriental
Bank of Commerce over the bad governance issues. There are actually six
reasons why the RBI superseded the board of Yes Bank.
Deteriorating
Financial Position
The
financial position of Yes Bank has undergone a steady decline over the last few
years because of its inability to raise capital to address potential loan
losses and resultant downgrades, triggering invocation of bond covenants by
investors, and withdrawal of deposits. The bank was making losses and
inadequate profits in the last four quarters.
Governance
Issues
The
bank has also experienced serious governance issues and practices in recent
years which have led to a steady decline of the bank. Take, for instance, the
bank under-reported NPAs to the tune of Rs 3,277 crore in 2018-19. That was
prompted RBI to dispatch R Gandhi, a former Deputy Governor, to the board of
the bank
False
Assurance
The Reserve
Bank says that it was in constant touch with the bank's management
to find ways to strengthen its balance sheet and liquidity. It says that the
bank management had indicated to the Reserve Bank that it was in talks with
various investors and they were likely to be successful. But in reality, there
was no concrete proposal from investors to put the kind of money that the bank
required to survive and grow.
Non-serious
Investors
The
bank was engaged with a few private equity firms for exploring opportunities to
infuse capital as per the filing in stock exchange in February this year.
"These investors did hold discussions with senior officials of the Reserve
Bank but for various reasons eventually did not infuse any capital," says
RBI. Clearly, it shows that the investors are not serious enough to put the
capital into the bank. In fact, the size of capital would have given the new
investor (s) a large stake where RBI's permission is a must.
No
Market-led revival in sight
The
RBI says since a bank and market-led revival is a preferred option over a
regulatory restructuring, it made all efforts to facilitate such a process and
gave an adequate opportunity to the bank's management to draw up a credible
revival plan, which did not materialize.
Outflow of
liquidity
The
bank was facing regular outflow of liquidity. It means that the bank was
witnessing withdrawal of deposits from customers. In fact, the deposits are
bread and butter of a bank. The bank had the deposit book of Rs 2.09 lakh crore
at the end of September 2019.
Source www.businesstoday.in
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