Yes Bank was once considered one of the fastest-growing private sector banks in India, but in 2020, the bank had to undergo a reconstruction process due to financial instability. In this article, we will explore the reasons behind the downfall of Yes Bank.
Yes Bank was established in 2004 by Rana Kapoor and Ashok Kapur. Initially, the bank saw rapid growth and was considered one of the most successful banks in India. However, in 2018, the Reserve Bank of India (RBI) raised concerns about the bank’s practices, particularly the quality of its loans and the bank’s underreporting of non-performing assets (NPAs).
NPAs refer to loans that are not being repaid, and the bank has been misclassifying its NPAs to present a healthier picture of its financials. In addition, Yes Bank had been lending to a few large corporations that were unable to repay their loans, which further added to the bank’s troubles.
In 2019, Yes Bank’s financial situation deteriorated, and it was placed under a moratorium by the RBI. The bank’s depositors were unable to withdraw more than Rs. 50,000 ($680) from their accounts, causing panic and uncertainty among customers. The RBI then took control of the bank and put together a reconstruction plan to save the bank.
The RBI’s reconstruction plan involved the infusion of Rs. 10,000 crores ($1.36 billion) of capital into Yes Bank by a consortium of banks led by the State Bank of India (SBI). In exchange, SBI was given a 49% stake in Yes Bank. The reconstruction plan also involved the write-off of Yes Bank’s additional Tier 1 (AT1) bonds, which are a type of debt instrument issued by banks to raise capital.
The downfall of Yes Bank can be attributed to several factors, including the bank’s over-reliance on a few large corporate borrowers, its underreporting of NPAs, and its failure to raise capital promptly. Yes Bank also lacked a strong governance structure, which led to several irregularities in its operations.
The reconstruction plan implemented by the RBI has helped Yes Bank overcome its financial troubles to some extent. However, the bank still faces several challenges, including the need to attract new customers and rebuild trust with existing customers. Yes Bank also needs to diversify its loan portfolio and reduce its exposure to large corporate borrowers.
In conclusion, the downfall of Yes Bank was a result of multiple factors, including its underreporting of NPAs, its over-reliance on a few large corporate borrowers, and its weak governance structure. The reconstruction plan implemented by the RBI has helped Yes Bank overcome its financial troubles to some extent, but the bank still faces several challenges in the future