Yes Bank: What you should know and do

End of the road for the bank that said yes, one time too many times

Source: Tavaga Research

Most of us would have seen the ads with rejected and dejected loan-seekers finding their messiah in Yes Bank, as part of the decade-old bank’s media blitzkrieg in its heydays. But RBI superseding the bank’s board on the evening of March 5 marked the nadir of its downward spiral it went into the last couple of years. It seems the bank is paying the price for saying ‘Yes’ one time too many to toxic corporate borrowers.

RBI taking over

RBI has appointed former-SBI CFO Prashant Kumar as the administrator of Yes Bank, after it superseded the board. 

The trigger for the move (which is often used to prevent a bank run) is not clear, besides the recent news of the government signalling SBI would buy stake in the bank. 

Yes Bank is yet to announce its third quarter results, to do which it has asked for an extension beyond the 45-days deadline ending in February. In the second quarter of FY 2020, Yes Bank had reported a loss of Rs 600 crore. 

The central bank imposed a moratorium on withdrawals of upwards of Rs 50,000 from 6 pm on March 5 to April 3, 2020 (total limit for the duration, and not daily limit) for all savings, deposit and current accounts of a person. Yes Bank will not be able to dispense any amount above the cut-off to its depositors, irrespective of their holdings. Yes Bank has around 2.86 million savings account and deposits worth Rs 2.09 lakh-crore.

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The jeopardy its depositors are now in is reminiscent of the PMC crisis that unfolded on September 24, 2019. PMC Bank had deposits of about Rs 11,000 crore.

In an attempt to prevent the dire straits PMC depositors had found themselves (the inability to pay for major life events such as medical emergencies, fees for higher studies, marriages etc.), there is a clause in RBI’s circular that will allow depositors to apply for withdrawals of upto Rs 5 lakh for such reasons, with the RBI reserving the final say.

Yes Bank’s employees are expected to be paid their salaries for the next one year, according to the government.

Keep calm

It will be easier said than done for Yes Bank’s depositors to keep calm. Especially those banking solely with Yes Bank.With their bank in serious trouble, their first impulse would be to move their money out, but they won’t be able to beyond RBI’s limit, aggravating the crisis. 

However, we should remember that the depositor funds have not disappeared, just as they did not at PMC bank. However, funds beyond Rs 50,000 are stuck but it is expected of RBI and the government to ease out the limit, in tranches if not all at once.

Of course, Yes Bank’s net-banking and mobile facilities have been inoperable since Thursday evening after the RBI news broke out. Depositors trying to move money out were faced with delayed reversals back into their Yes Bank accounts.

Dos and don’ts for a Yes Bank customer:-

  • If you have an upcoming loan EMI payment to be debited from a Yes Bank account, inform the lender about the situation, and ask the lender to extend your deadline for payments.
  • If you have linked your Yes Bank account to your Sips in MFs or any other investment, get in touch with the AMC or your investment adviser and ask them to help you change the bank account right away. Ditto for automatic bill payments from a Yes Bank account.
  • With a salary account at Yes Bank, inform your employer and ask them to change the bank. 

Light at the tunnel’s end

The beleaguered Yes Bank has had many suitors appraise it for a merger or a buyout. Last year, speculations pegged both Kotak Mahindra Bank (KMB) and Axis Bank to be in the running to buy it, with SBI and Axis Bank spokespersons in December, 2019, pointing to KMB’s scale of operations making it a fit suitor. 

SBI’s entry 

However, a day before RBI’s move, the streets were abuzz with the news of the government of India allowing SBI to acquire a stake in Yes Bank. It will have to now wait for RBI to give its take on the crisis. 

RBI has assured the public that it will be drawing up a scheme for reconstruction of Yes Bank in the next few days to alleviate depositors’ woes. 

SBI is likely to buy a stake or move for a merger once the dust settles.

Street reaction

The stock market has been wary of the Yes Bank stock for a couple of years now, with wild fluctuations of the stock. It was slated to be dropped from the benchmark Nifty 50 on March 27, as announced in February.

In the last one year alone, the stock has fallen nearly 93 percent.

Share price fall of YES bank
Source: NSE, Tavaga

On Thursday, after RBI’s announcement, the exchanges have taken the stock out of (or banned it from) their F&O trading counters with no trading from May 29. 

The share price of Yes Bank was battered on Friday, March 6, and reached a low of Rs 6, before rebounding and closing at Rs 16.60. The day’s fall for Yes Bank’s share was 54.89 percent. 

Retail investors who held mutual funds with an exposure to Yes Bank stock suffered as well. 

The fund houses which had the largest exposures to Yes Bank till March 6 were:-

MFs holding YES Bank
Source: Value Research, Tavaga

However investors in index funds and exchange-traded funds (ETFs) would not have suffered as much as the MF units-holders because Yes Bank, with a weightage of just 0.73 percent in Nifty 50 was set to be anyway removed in March, and replaced by Shree Cements.

Chequered past

Yes Bank is among India’s top six private banks, but the going has been anything but smooth. Corporate governance issues saw its founders locked in a battle over stewardship. There has been managerial uncertainty since 2018 when RBI refused to extend the term of its founder, Rana Kapoor, as the chief executive. 

The biggest blot was its record of handing out loans that went bad, made worse by under-reporting of those loans in its books. Corporate governance was always suspect at the bank. 

Last year, its promoters sold off their shares, sending Yes Bank’s share prices hurtling down. 

Under Kapoor’s successor Randeep Gill, the bank managed to raise one round of funding through a share sale to institutional investors for its troubled finances. But it was not enough. 

Yes Bank has been short on capital since then. Talks with investors and private equity funds to raise money to meet its liquidity requirements were in vain. 

Fintech’s reaction

Yes Bank had numerous partnerships with fintech companies, especially in the UPI payments space. But RBI’s move has sent shockwaves in the fintech ecosystem.

The Indian fintech companies with tie-ups with Yes Bank have received notice that their 

services from the bank will be unavailable until further notice. 

Companies like PhonePe, CRED and UDAAN have suffered with Yes Bank as their sole payment service provider. UPI transactions through them are not getting processed as services are on hold until further notice by RBI. CRED, UDAAN.

But as they say, not rescuing Yes Bank will cost the economy and its people more than rescuing it. For RBI, SBI and the government, it is a race against time then.

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