Gian Jyoti Institute of Management and Technology,

Mohali

ASSIGNMENT NO- 2

Academic Session January-May 2020

 Name - Isha Rani

 Class - BBA-2
 Roll no - 1922768
 Subject code - BBAGE201-18
 Subject Name - Managerial Economics
Overview of YES Bank

Yes Bank Limited is an Indian public bank headquartered in Mumbai, India and was
founded by Rana Kapoor and Ashok Kapoor in 2004. It offers wide range of banking and
financial products for corporate and retail customers through retail banking and asset
management services. On 5 March 2020, the Reserve bank of India(RBI) has taken control
of the bank which had an excessive amount of bad loans in attempt to avoid the collapse of
the bank, later reconstructed the board and named Prashant Kumar former chief financial
officer of SBI as new MD and CEO at Yes bank.

Yes bank crises

The Reserve Bank of India (RBI) on March 5 placed Yes Bank under moratorium and
restricted withdrawals to a maximum of Rs 50,000, sending its customers into a wave of
confusion and panic.
Shares of the lender fell to its lowest on Friday, at Rs 5.65 a share, down by over 84% in
intraday trading before paring losses and closing at Rs 16.15 on the NSE. Depositers
queued up to withdraw their money and fintech platforms partnered with the bank suffers
outages and suspended their service.

Reasons for Yes bank crises

1. Bad loans
Yes Bank, a medium-sized private sector bank, first ran into trouble following the
central's bank's asset quality reviews in 2017 and 2018, which led to sharp increases in its
impaired loans ratio and uncovered significant governance lapses that resulted in a
complete change of Management.
Yes Bank, yet to report its third-quarter financials, has struggled to raise the capital that it
needs to stay above regulatory requirements as it battles high levels of bad loans. It has
been trying to raise more than $1 billion in fresh capital since late last year.

2. Sluggish economic sector

Indian authorities have been struggling to contain a crisis among shadow lenders, less
tightly regulated lending and lending for riskier businesses, which has choked credit to
consumers and small businesses, slowing economic growth to a 11-year low, according to
Fitch Ratings.
In the absence of a credible revival plan, and in public interest and the interest of the bank’s
depositors, it had no alternative" but to seize Yes Bank, the RBI said in the statement. In its
2020 Outlook for 'Asia-Pacific Emerging Market Banks', Fitch maintained a negative
outlook on Indian banks, based on its expectations of continued weak performance despite
trends showing the trough might have passed, and ongoing capital requirements.

3. Governance issues
The bank has experienced serious governance issues and practices in recent years that led
to its downfall. According to a Business Today report, the bank under-reported Non-
Performing Assets to the tune of Rs 3,277 crore in 2018-19.

4. Deferring regulatory restructuring

The troubles of Yes Bank have been known. Two years ago, co-promoter Rana Kapoor
was asked to step down by the RBI. Despite continued poor performance, the RBI did not
place the bank under the Prompt Corrective Action framework and chose to move directly
to a moratorium. According to a report in The Hindu, the central bank had flagged several
concerns in recent years, including a distinct divergence between the bank's reported
financials and the RBI’s findings.

5. High withdrawals
Yes Bank’s financial condition dissuaded many depositors from keeping funds in the bank
over a longer term. The bank showed a steady withdrawal of deposits, burdening its
balance sheet and adding to its woes. The bank had a deposit book of Rs 2.09 lakh crore at
the end of September 2019.

Action of RBI and Government for Yes bank crises

In Yes bank crises Reserve bank of India (RBI) has stepped into restore faith in private
banks. After its action against Yes Bank , the central bank noticed that some state
governments had advised bodies under them to move their deposits and accounts to more
secure public sector banks. Reacting to this development, the RBI has written to state
Governments, advising them to not panic.
Some of the state government has advised government bodies and other entities under their
jurisdiction to transfer their funds held with private sectors banks to public sectors banks. It
is also learnt that a few other state government are contemplating similar action , RBI said
in aletter addressed to chief secretaries of various governments.
Financial restructuring by SBI to Yes bank

(A ) SBI infuses Rs.7,250 crore into ailing Yes bank to pick up to 49%equity as part of RBI
mandated bailout plan.

(B ) SBI will pick 7,250 million shares at Rs.10 each, and its shareholding will remain
within 49% of the paid up capital of the private sector lender.

(C) Under the restructuring scheme, the authorized capital shall stand altered to Rs.5,000
crore. The number of equity shares will stand altered to 24,000 million of Rs.2 each
aggregating to Rs.4,800 crore.