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Why did Yes Bank collapse? Here are 6 main reasons

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

twitter-logoAnand Adhikari | March 6, 2020 | Updated 13:02 IST
Why did Yes Bank collapse? Here are 6 main reasons
Yes Bank news: The financial position of the bank has undergone a steady decline over the last few years

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 There are actually six reasons why the RBI superseded the board of Yes Bank.

Also read: YES Bank crisis Live Updates: Panicked after RBI cap, depositors queue up outside ATMs

Also read: YES Bank crisis: You can withdraw cash up to Rs 5 lakh; here's how

Take a look;

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.

Also Read: RBI's board superseding points to graver issues at YES Bank

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.

Also Read: RBI imposes moratorium on YES Bank, limits withdrawals to Rs 50,000

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.

Also Read: What's cooking behind YES Bank's back?

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.

Also Read: SBI to buy stake in YES Bank? It's govt order, claims report

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