Yes Bank Crisis: Explained
The crisis at Yes Bank dates back to 2015 when UBS published a report saying that Yes Bank has borrowed 125 percent of its net worth to stressed companies. This was followed by an asset quality review by the RBI which showed that it’s NPAs stood at Rs. 8000 crores than the Rs. 2000 crores as declared by the bank. In 2018, RBI asked Mr. Rana Kapoor, the then CEO of Yes Bank to step down from his position and appointed Mr. Ravneet Gill as the new CEO. But the situation continued to decline.
The problem took a serious toll in the initial week of March when the price of shares of Yes Bank fell down by 62% in a single day. On 5th March 2020, RBI imposed a moratorium on the bank under Section 45 of the Banking Regulations Act, 1949. Mr. Prashant Kumar, RBI appointed administrator superseded the board of directors at Yes Bank to become the new CEO and MD. A reconstruction scheme was announced by the RBI to bring the bank back on track. Under this scheme, a restriction was imposed on the withdrawal limits above Rs. 50,000. The AT 1 Bonds issued by the bank were decided to be permanently written down. A lock-in period of 3 years was imposed on the shareholders for 75 percent of their shareholdings, with exemption for those holding upto 100 shares.
Although the restrictions to withdrawal were removed after 13 days on 18th March 2020, the investment lock down still poses a threat to the investors of the Bank. RBI has also prompted State Bank of India along with HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank, Azim Premji Trust, and other private bodies to invest and own a 49% stake in the bank to pull it out of the crisis.
The crisis faced by the Yes Bank raises the question as to why preventive measures were not taken when the RBI was aware of the leaning danger over the bank. Although the government must be praised for its quick actions in rescuing Yes Bank, it cannot be denied that somewhere, the Central Bank is also responsible for this fallout.