FALL OF YES BANK

India's 4th largest private sector bank came into headlines on 5th of march 2020 with an alleged bank scam of rupees 4300 crores, the private bank could not serve it's debt. In India almost 35% of all UPI transactions were supported by YES BANK.

(Source:- Times of India)

YES BANK was also payment partner/banking partner in various companies such as:- 

PHONE PE

FLIP KART

SWIGGY

RED BUS 

ETC

IN COMPARISON TO PMC BANK(PUNJAB MAHARASHTRA COOPERATIVE BANK) SCALE OF YES BANK WAS MUCH HIGHER.

PARTICULARS	PMC BANK	YES BANK
TYPE OF BANK	COOPERATIVE	PRIVATE SECTOR  BANK/SCHEDULE BANK
REPUTATION	GOOD	GOOD(FASTEST GROWING BANK 2015)
EMPLOYEES	800	18000
DEPOSITS	11000 CRORE	200,000 CRORE

(Source:- Central Vigilance Commision)

YES BANK was jointly set up by Mr. Rana Kapoor and Mr. Ashok Kapoor in year 2004 . As per RBI guidelines a bank should hold at-least 4%(maintain cash reserve ratio) of it's total net deposits and lend the rest 96% to the economy in form of loans and other form of lending.

Cash Reserve Ratio is basically the amount of money a bank should hold at any point of time.

so, that means a bank is holding not more than 4% cash for withdrawal purpose of it's customers/depositors.

There is a common terminology as BANK RUN.

BANK RUN:- When the trust of customer/depositors is no more on the entire banking sector and depositors decide to withdraw there money at large from the bank.

Since, in such a case bank does not necessarily holds that much amount of cash readily available to meet such a situation, RBI had to intervene and put withdrawal capacity limit i.e 50,000 per day for each YES BANK costumer/depositors.

As per bank's lending log major of the loans were granted in the year 2014-15.

Major Defaulters of YES BANK are:-

Cafe Coffee Day

DHFL

Cox&King

Anil Ambani's Reliance Group

Essel Group

etc. (source:-economic times)

As per UBS Global Financial Services Co-operation pointed out yes bank was lending loans on a high rate of interest, it's accelerated growth was basically giving loans to stressed companies.

Stressed companies:- Refers to companies that have a high risk of non repayment of loans.

(Source:- www. terminology.com)

So one of the major reasons for fall of YES BANK was increasing bad loans/ non performing assets.(NPA)

Non Performing Assets:- Refers when the loan granted falls short/delayed for repayment by 90 days or more they are termed as Non Performing Asset.

In year 2017, RBI had to give notice to YES BANK for increasing Non Performing Asset, Infact  it was found out the NPA projected by the bank was deviating by almost 3000 crores. 

With RBI stepping in Mr. Rana Kapoor had to resign as CEO and Mr. Ravneet Gill was appointed as the New CEO of YES BANK.

The quarterly loss reported by YES BANK in April 2019, impacted there share price to fell by 30%.

(source:- www.yesbank.in)

NPA Ratio of the bank had increased to 8%, in November 2019 Mr. Rana Kapoor sold out all his holding in YES BANK estimated to be rupees 142 crores, on 8 March 2020. Enforcement Directorate officers took in custody Mr. Rana Kapoor for the alleged bank scam.

 

As per 2019 report, NPA Ratio in India is 11%, in other countries its about 2% or less than 2%.

Recovery Rate:- Chances of Bad Loan/ NPA turning good( recovery)

in India recovery rate is only 30% in comparison to other nation its 80%. 

So, The Question arises that how will Government save such as Big Bank from Collapsing?

Basically such a big bank can not be let to collapse, since it shall withdraw the trust of depositors over entire banking sector at large. plus 18,000 employees shall run out of their jobs which shall increase unemployment in the country.

 

BAIL OUT:- A common terminology used where Government invest either by itself or it's other Government companies to save

such companies. In our case it's - YES BANK.

As said Sate Bank of India (SBI) had to buy 49% stake in YES BANK at a cost of rupees 2,450 crores. Other sources which Government can use for collecting money for bail out of such companies is selling its holding in other Public Sector Undertaking (PSU) such a example will be BPCL and ITC Government had to sell its stack/ holding in them.

So, as already read it can be very well seen the collapse of YES BANK does not means depositors shall lose their money. it's safe till the time Government is backing up such undertakings from collapsing.

Coming up-to share price of YES BANK, since the news of such a big banking scam share price of YES BANK fell down drastically its last traded price as on 22 May 2020 is rupees 26.60 which used to trade at rupees 31.5 on 2 March 2020.

So, in my opinion even though there is a buzz in the market regarding YES BANK getting backed up by SBI / Government still the effect of it is not quite visible on the share price of YES BANK it may or may not be a opportunity to invest in YES BANK.