What is Yes Bank crisis: Learn 5 main reasons

What is Yes Bank crisis: Learn 5 main reasons

Currently the banking sector of India is going through a huge crisis. Now another commercial bank, Yes Bank is in trouble. This bank has liabilities of US $ 24000 million. RBI has set a withdrawal limit of Rs 50000 per customer for the customers of Yes Bank from March 5 to April 3 so that all the account holders can be given some money.

The Indian banking sector is currently going through the worst phase. The main reason for this is the non repayment of loans by big corporate houses. Due to this non repayment, non performing assets of banks are increasing due to which they are not able to lend to new people and their entire financial capacity is being affected.

As of September 30, 2019; Non-performing assets (NPAs) of public sector banks stood at Rs 7.27 lakh crore. Similarly, non-performing assets (NPAs) of private sector banks have also become very high.

Let us now examine the causes of Yes Bank in financial crisis in this article.

Some facts about Yes Bank

Establishment: 2004; (16 years ago)

Founder: Rana Kapoor, Ashok Kapoor

Chairman: Brahmadatta

MD & CEO: Ravneet Gill

Number of branches and ATMs: 1,122 branches and 1,220 ATMs (June 2019)

Staff: 18,238 (2018)

Bank Type: Private Bank

Revenue: Rs. 25,491 crore (2018)

Total Assets: Rs. 301,390 Crore (2018)

Net Income: Rs. 1,506.64 Crore (2019)

Products: consumer banking, credit cards, corporate banking, finance and insurance, mortgage loans, private banking, wealth management, investment banking

Yes Bank crisis

Now we discuss the causes of Yes Bank crisis

1. Deteriorating Financial Position

The financial condition of the bank can be ascertained by the steady decline in the prices of Yes Bank shares. The share price of Yes Bank was Rs 400 in 2018, which is now only 16.60 as on 6 March 2020. The bank has been unable to raise capital to overcome its potential debt deficit. The bank had been incurring losses for the last four quarters.

2. Pauper Corporate Customers Bankrupt Corporate Customers

Yes Bank’s list of customers has more corporate customers than retail. Yes Bank has given loans to most of the companies which are running in losses. This is the reason why Yes Bank did not get its loan back on time. The poor financial condition of companies has also deteriorated the financial position of Yes Bank. This bank has liabilities of US $ 24000 million.

3. Institutional Issues

Yes Bank founder Mr. Ashok Kapoor died in the 26/11 Mumbai attack. Late Ashok Kapoor’s wife wants her daughter to be included in the board of directors, which was opposed by Rana Kapoor’s wife. This proves that the bank was embroiled in a fight of nepotism and that no necessary steps were taken to save the bank. This is the reason why Mr. R. Gandhi, former Deputy Governor of RBI, was included in the board of directors of Yes Bank. The total NPA of the bank was Rs 3,277 crore in the year 2018-19.

4. Outflow of Liquidity

Money deposited by customers is the backbone of the banking industry. If a rumor arises that a bank may go bankrupt in the future, all the customers suddenly start withdrawing money, due to which the bank’s deposit capital starts running out due to which it is unable to make a new loan, cannot make profit and Eventually the bank goes bankrupt.

yesbank

Yes Bank had a deposit of Rs 2.09 lakh crore by the end of September 2019, which fell very fast and then came a day when the bank failed to give money to the people and the Reserve Bank was given Rs 50000 per customer / per month. The limit has to be fixed.

5. Huge Liabilities

The total liability of Yes Bank is 24 thousand crore dollars. The bank has a balance sheet of about $ 40 billion (2.85 lakh crore rupees). Yes Bank has to pay US $ 2 billion to increase its capital base.

Finance Minister Nirmala Sitharaman had said that the money of every customer of Yes Bank will be safe. According to the news, SBI; Yes, it can buy 49 percent stake in the bank. Hopefully after reading this article, you must have understood what are the reasons why Yes Bank is in financial crisis?

Akash Sangule

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