The bank, however, could not hide its bad debt under the carpet for long
as RBI auditors forced all banks to disclose their bad debts.
The problem at YES
Bank was not so apparent till the Reserve Bank of India (RBI) refused to
grant an extension to its managing director and chief executive officer Rana
Kapoor, back in September 2018. The bank board then hired Ravneet Gill of
Deutsche Bank to replace Kapoor. However, the problems started emerging as it
struggled to raise capital. The lender started shrinking its loan book since
March 2019 (Chart 1), but deposits remained healthy (Chart 2) as the general
public was sure that, despite the troubles at the bank, they won’t fail.
The bank, however, could
not hide its bad debt under the carpet for long as RBI auditors forced all
banks to disclose their bad debts. YES Bank had the highest divergence among
private sector banks, and cautioned by the RBI
auditors, it started reporting higher bad debt since the September 2018 quarter
(Chart 3). Even as the bank struggled to raise capital, its capital adequacy
remained strong till the December quarter numbers were disclosed. We now know
that the bank under-reported bad debt.
But it all changed after
the central bank’s crackdown and the December 2019 quarter results showed the
rot in the bank. Capital adequacy ratio plummeted (Chart 4) as the bank had to
provide for its huge pile of bad debt, and share price nosedived, sinking the
market capitalisation (Chart 5) till the government and the RBI decided to
rescue the bank and bring other lenders, including State Bank of India, to put
in equity capital (Chart 6). With the moratorium lifted on March 18, YES Bank
has restarted its operations as a full service bank. It has enough liquidity to
honour its deposits of Rs 1.65 trillion. And the RBI has now opened a credit
line of Rs 60,000 crore for the bank to tap.
StatsGuru is a weekly
feature. Every Monday, Business Standard guides you through the numbers you
need to know to make sense of the headlines. Source: CapitalLine; compiled by
BS Research Bureau.
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