How the YES Bank Collapse Unfolded - 10 Points - Views on News from Equitymaster

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How the YES Bank Collapse Unfolded - 10 Points

Mar 9, 2020

In under 3 years, Yes Bank has gone from being a darling of investors to a pariah. Here's a look at the events that led to the crisis in 10 points.

  1. 2017: RBI forces Yes Bank to disclose that there is big divergence in its non-performing loans of Rs 42 billion reported in the company's audited accounts for the year ended March 2016. The divergence further widened to almost Rs 64 billion a year later. To put this in perspective, the RBI audit had pegged its total gross non-performing assets (NPAs) at 5% for FY16, against the bank's own assessment of only 0.8% for the same year.
  2. September 19, 2018: Not surprisingly, a year later, RBI refuses to give Yes Bank CEO Rana Kapoor an extension to his term as MD. The apex bank asks Kapoor to step down by end of January 2019. Kapoor fights back...but it always seemed like a battle he was set to lose.
  3. November 27, 2018: Rating agency Moody's cuts bank's rating outlook to 'negative' from 'stable' citing concerns over corporate governance. This is a big whammy...for a bank, its credit rating is everything.
  4. January 24, 2019: Yes Bank hires the head of Deutsche Bank India, Ravneet Gill, as its new CEO. There's hope...even though Gill has not run a bank of this size before. The stock price rallies 66% in the days following the appointment.
  5. May 14, 2019: RBI appoints former central bank Deputy Governor R. Gandhi as additional director to Yes Bank's board - a rare move signaling an increased level of scrutiny on the lender.

    Yes Bank reports 91% drop in profit in 1QFY20, provisions surge and gross NPA ratio stands at 5%.
  6. October 3, 2019: CEO Gill says bank is in talks with private equity firms, strategic investors and family offices to raise additional capital. Again, this appears to be good news.
  7. October 31, 2019: Yes Bank gets binding investment offer of US$ 1.2 billion from a global investor. But this does not go down well as credibility of the likely largest investor is questioned in the media.
  8. November 1, 2019: Yes Bank reports bigger-than-expected loss for 2QFY20, NPA to loans ratio swells to 7.4% and provisions swell to Rs 13.4 billion.
  9. March 6, 2020: It's been months now and there is little progress on capital raising (other than rumours floating around). RBI takes over Yes Bank's board and imposes a month-long moratorium, imposing a limit of Rs 50,000 on withdrawals.
  10. March 7, 2020: Stock price of Yes Bank crashes by nearly 60%. At it's worse the stock was down at Rs 5.7 that day. RBI shares a restructuring plan for Yes Bank...basically a bailout by SBI.

Well, then...that's the Yes Bank timeline. At the time of writing, stock price of Yes Bank was trading up by 31%.

Next time, when you think of buying a banking share...or making a sure you understand the risk.

Rini Mehta

Rini Mehta is a keen follower of the stock markets and economy. At Equitymaster, she covers daily stock market moves and broader market trends across Indian and global markets.

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1 Responses to "How the YES Bank Collapse Unfolded - 10 Points"

Ganapathy Sastri

Mar 24, 2020

It will be helpful, if you can quantify how much money was lost by YES bank and how much benefit accrued to the former "PROPRIETOR" of the bank and other third parties. Appears to be a case of LOOT on a massive scale.
Most banks in India are like buckets with hole at various places some at mid point level, some near the top level and some at the bottom. You can never fill the last category of buckets.

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Sep 29, 2020 03:37 PM