FINANCE CLUB

YES
BANK
CRISIS
SDA BOCCONI ASIA CENTER
REASON BEHIND THE CRISIS

POSITION CUSTOMERS GOVERNANCE LIQUIDITY LIABILITY

The financial Most of the The bank has  If rumour arises It has a total
condition corporate experienced that a particular liability of 24
deteriorated due to customers it has serious governance bank may be in thousand crore
its inability to raise given loans are in issues and practices problem in the dollars. It has to
capital to address loss. That is the in recent years future; suddenly all pay $ 2 billion to
potential loan reason that it did which have led to a the customers start increase the capital
losses. not receive its loan steady decline of withdrawing base.
back on time. the bank. money.

Yes Bank Crisis| 2020

 EFFECT OF THE CRISIS ON THE ECONOMY
IMPACT ON MUTUAL FUND
INDUSTRY
The debt funds of many asset
management companies (AMCs) took a
severe beating as many of them had an
exposure to the bonds and non-
convertible debentures (NCDs) of the
bank.
LOSS OF REPUTATION
The Yes Bank crisis comes in the
backdrop of a prevailing environment of
financial stress. With the added strain of
economic turmoil caused, global fund
houses are bound to seek safer havens
or approach any further investments
into the Indian economy with caution.
DIGITAL PAYMENT MISTRUST
Yes Bank had one of the most
widespread digital payment networks in
India, the sudden curbs on its
operations, and limited functionality of
its cards, will result in merchants’
money getting frozen.
RELOOK AT INTEREST RATES
Yes Bank was one of the many private
banks offering generous interest rates
(as much as 7%) on its savings accounts.
This practice is simply not sustainable.
Now, the Yes Bank crisis is sure to
prompt a reconsideration of the
business model.
HOW THE CRISIS IS BEING
RESOLVED?
YES BANK LTD RECONSTRUCTION
SCHEME

A consortium of banks led by the State Bank of

India (SBI) has come to the rescue of the cash-
strapped Yes Bank. The plan involves investments
of over Rs10,000 crore ($1.35 billion) for a 49%
stake in the bank by the consortium.
SBI will buy new equity in the bank at a minimum
of Rs 10 per share, including Rs 8 per share
premium. It will invest about Rs 2,450 crore of
equity capital into Yes Bank.
Yes Bank Crisis | 2020
 CONCLUSION

The dramatic case that unfolded around Yes Bank

involving its collapse and, subsequently, the rescue act in
collaboration with SBI was far from unforeseen. The
central bank needs to assert its regulatory oversight, or
else the banking sector will rapidly transform into banks
functioning like pseudo-legalized chit funds.

Yes Bank Crisis | 2020

 RBI SHOULD REVIEW ITS PROMPT CORRECTIVE ACTION
(PCA) FRAMEWORK

LEARNINGS! The PCA framework deems banks as risky if they slip some
trigger points - capital to risk weighted assets ratio (CRAR), net
NPA, Return on Assets (RoA) and Tier 1 Leverage ratio..

COMMERCIAL BANKS AND INSTITUTIONS

Implement prudential norms in events of providing loans.

INVESTORS
They should pay attention to governance events like exit of
upper management, a dispute between promoter, under-
reporting, poor results, any drastic fall in share price should
be rising alarm bell

Yes Bank Crisis | 2020