The Indian subcontinent has a unique flavor in itself. At a time when the entire global economy is shrinking because of the coronavirus pandemic, the Indian banks are singing a different tune altogether – a streak of shadow loans and poor governance. After the PMC bank crises a few months ago, now the Ravneet Gill led private sector bank is following suit. One of the major private lenders, Yes Bank Limited (YESBANK), is on a tailspin and touched a 52-week low on Friday morning. The Bank’s stock has fallen 60% within two hours of the market open on March 6. The Reserve Bank of India notified its intent to step in and enforce a corrective action plan on the late hours of Thursday.
Highlights
Yes Bank Ltd shares on a downward spiral. Crashes 60% since market open on Friday
State Bank of India hopes to control panic by superseding Yes Bank board. A potential amalgamation with a consortium of Banks in the pipeline.
The Yes Bank Crisis
Yes Bank customers were in for a shock when RBI put a cap on withdrawals. Customers can withdraw no more than Rs.50,000 in the next 30 days during which the Bank could witness a significant reconstruction. Yes Bank Limited has been under pressure to raise capital since The IL&FS (Infrastructure Leasing & Financial Services) defaults. In April 2019, Yes Bank reported a quarterly loss of Rs. 1,506 crores, 100% decline YoY. The financial ratios went for a toss, and questions about its longevity surfaced soon. On November 1, Yes Bank reported an Rs.600 crore loss in its Q2 earnings and furthermore delayed the Q3 financials citing a “review of investment offers,” according to Bloomberg Quint.
Yes Bank was trading over Rs.330 per share in January 2018. The shares tanked by 43% in 2018 and continued the downtrend in with a -73% drop in 2019. When writing this post, the stock is still on a freefall and trading at Rs.13.60
SBI to initiate revival efforts
Yes Bank is reportedly the fourth largest private sector bank in India. You can imagine how critical the situation is when RBI has put in withdrawal limits on savings accounts. An official release from the RBI clarified that it would closely monitor Yes Bank’s governance for the next 30 days. Mr. Prashant Kumar, the ex-DMD and former CFO of State Bank of India will play the role of the administrator.
There are unofficial reports that State Bank of India could stabilize the situation with an amalgamation deal. A consortium of Indian banks led by SBI could aide to improve Yes Bank’s financial ratios with over Rs.12,000 crore capital infusion
Conclusion
The Yes Bank incident is the second episode in a row when a major bank is on the verge of collapse. It is evident the Indian economy was not prepared for it. Just two days ago, the Business Standard published a piece on Banking Regulation (Amendment) Bill, 2020. This bill might have helped the RBI to charge in and take the reigns. However, it doesn’t seem as useful for Yes Bank customers who are still distraught.
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