All About the Yes Bank Crash

Created on 07 Mar 2020

Wraps up in 3 Min

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Yes Bank confused between bailout and fundraising

Yes Bank is in doldrums. But, how has it managed to do this? Read and find out below. Imagine you visit a fight club and see that two fighters are ready for a bout.

One of these fighters is a hefty guy who has won most of his fights previously and looks strong for this one as well. You feel like betting your money on this fighter. Before you could doubt your decision, suppose there’s a veteran fighter who is sitting next to you and said “This guy is unbeatable!” Now you’re further assured that putting your money on this fighter will make you win.

The fight started and the guy (you put your money on) received a nasty blow from his opponent. Till this time you won’t bother because this is a part and parcel of the game. You hope that he’d recover and hit his opponent hard. But, then he receives another punch and goes down to the knees. Then he receives a series of kicks and punches and eventually gets knocked out. Forget about winning, the fighter had to be taken to the hospital on a stretcher. How would you feel? This is how Yes Bank investors are feeling right now.

What’s the News on Yes Bank?

The current news is that Yes Bank has been put on a moratorium by the Reserve Bank of India. Also, the RBI has superseded the Board of Directors of the bank and capped the withdrawal limit to Rs 50,000. Of course, this created further panic among the account holders and therefore Finance Minister had to step in and announce that the depositors’ money is safe.

Just before this, RBI Governor Shaktikanta Das said that the bank’s issue would be resolved soon and it would take less than 30 days to do so. A day before, the news was spread that since the government has ordered for the bailout of Yes Bank, the bank would be merged with SBI. But, by the end of the day it was confirmed that this is just a rumor and it wouldn’t be an easy road ahead for Yes Bank.

What Exactly Happened with Yes Bank?

For knowing what exactly happened with Yes Bank, we will have to reverse the clock a few years. Founded by Rana Kapoor the private sector bank was incorporated back in 2003 and obtained license for the commencement of business in 2004. After that the bank started growing. Then it put its foot on the accelerator and grew rapidly. But, this growth was a result of aggressive lending. By aggressive we mean illogically aggressive i.e. to an extent that can not be justified.

In the year 2017 when its annual report for FY 2016-17 was published, Yes Bank had under-reported its NPA by almost 7 times. This rang a bell of caution but the thunder didn’t last for long as the RBI issued a clean chit to the bank in February, 2019. This instilled confidence in the investors as RBI had also appointed one of its executives in the bank’s board. But, after that things just got worse instead of improving and the result is what we’re seeing now.

What Can we Learn From Yes Bank’s Downfall?

It’s sad to see the investors losing their hard-earned money just because they trusted a company. Now, either we can get depressed thinking about the adversity or we could learn and move ahead in life towards better things. In case of Yes Bank, we need to learn that corporate governance is one of the most serious issues that can downgrade a company to unimaginable levels. As an investor, you should be cautious enough and consider promoter pledging etc. before investing.

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Deb P Samaddar

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If people could be named after idioms, Deb would be called "I'm all ears." His brain is a storehouse, ever overflowing with derelict information. So, while most things he talks about are as useless as occasion-less greeting cards, everything he writes has the potential of bagging you multiple diplomas!

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