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Statsguru: From SBI to ICICI Bank, lenders come to YES Bank's rescue

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

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With no disclosure on the true extent of losses, it may be difficult to convince depositors to continue to hold their funds in YES Bank

Subrata Panda

2 min read Last Updated : Mar 23 2020 | 12:22 AM IST

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.

Compiled by BS Research Bureau

Topics : Rana Kapoor YES Bank Crisis YES Bank Reserve Bank of India