YES Bank stock crash and financial mess: How the crisis unfolded in 2 years

At one point in August 2018, the YES Bank stock was trading at around Rs 300 and the then MD & CEO Rana Kapoor had vowed never to sell his shares. He wanted to pass them on to his daughter. A year and a half later, the situation today is completely different. 

At 1:30 pm today, the YES Bank stock was trading at Rs 16.80 apiece on the BSE, down by about 55 per cent from previous close. In fact, it had crashed as much as 85% earlier in the day to Rs 5.55.

In a late evening announcement on Thursday, the Reserve Bank of India (RBI) superseded the board of YES Bank and imposed a month-long moratorium citing the bank’s poor financial conditions.

For depositors, this means that they cannot withdraw more than Rs 50,000 without written permission from the RBI during this period. For its part, the bank cannot grant or renew any loans, or “incur any liability”, except for payment towards employees’ salaries, rent, taxes and legal expenses till the moratorium is in place.

However, in situations of medical emergency or marriages, depositors could withdraw up to Rs 5 lakh or the amount lying in account, whichever is less.

The RBI also appointed former State Bank of India chief financial officer Prashant Kumar as YES Bank’s administrator. The central bank said it was left with no alternative except taking this decision in the interest of the public and the bank’s depositors.

The RBI averred that the steady decline in the financial condition of the bank had been largely due to inability of the bank to raise capital to address potential loan losses and resultant downgrades, triggering invocation of bond covenants by investors, and withdrawal of deposits.

Companies that failed to repay their loans to YES Bank include Dewan Housing Finance, Essel group, CG Power, the Anil Ambani group companies, and Videocon.

The crisis at the bank began in 2018 and grew gradually. In September that year, the RBI reduced Rana Kapoor’s new three-year term as CEO until January 31, 2019. The next day, the YES Bank stock tanked 30 per cent and continued its downward spiral.

In October, the RBI refused Kapoor more time and asked the promoters of the bank to find a new CEO. All this led to poor quarterly results and the bank’s asset quality deteriorated.

YES Bank later said it had a huge exposure to debt-laden IL&FS. Independent director Ashok Chawla resigned from the YES Bank board, and Vasant Gujarathi stepped down. In November, independent director Rentala Chandrashekhar resigned.

The same month, Moody's downgraded the bank's rating, owing to the resignations from the board.

After Kapoor’s exit, new CEO Ravneet Gill, who came from Deutsche Bank — was tasked with reviving the bank. However, Gill failed to bring any respectable investor on board, even as several names came up — from Microsoft and Paytm, JC Flowers and Tilden Park Capital. In fact, in a bizarre case, one of the potential investors turned out to a man who had filed for bankruptcy in Canada.

So, what now?

In view of the recent move, RBI Governor Shaktikanta Das on Friday said: "The decision is taken at a 'larger level', not at individual entity level, and the move is 

aimed at ensuring safety of financial system."

The governor expressed confidence that the YES Bank resolution would be done very swiftly, and that 30 days had been set as the outer limit.

Meanwhile, vexed customers of the bank are facing multitude of problems in withdrawing and transferring their money using ATMs and online platforms. Long queues were seen outside YES Bank ATMs. Problems have been reported in the bank’s mobile application and net banking services, too. The services of Walmart-owned PhonePe, which uses YES Bank’s banking system for payments, has also been down since Thursday evening.

State Bank of India confirmed that its board had given its in-principle approval to consider an “investment opportunity” in YES Bank, although no decision had yet been taken to pick up stake in the bank.

Media reports quoting highly-placed sources on Thursday indicated that the government had approved a rescue plan for YES Bank involving SBI and Life Insurance Corporation of India (LIC) and an announcement in this regard might be made soon.

LIC already owns 51 per cent in IDBI Bank, which it acquired in 2018 to infuse capital into the troubled lender. Sources said both LIC, which already holds ...

To know more, listen to this podcast