YES BANK CRISIS: The nation has recently been in great trauma because of a major decline in the economy. The country has not been doing too great in terms of managing finances and the economical aspect is the one getting affected by the careless decisions of the ones in power. Our government has a major problem at hand currently. Apart from the Citizenship Amendment Act or the Covid-19 (Coronavirus) or the protests internally eating our nation, the weak economy is a condition of all fears. The banking and the financial sector has been undergoing a lot of stress lately since the past decade because of the bad loans, bad regulations and lax regulations. Yes, all this talk is about the crisis that Yes Bank is currently facing.
WHAT IS THIS “YES BANK CRISIS” SITUATION?
There has been a great unease for the customers of Yes Bank after the decision of Reserve Bank of India capping the withdrawals from most accounts at Rs. 50,000 for the next month up to the start of April. Although it has been a concern for the past year about the bank going in a crisis, most people chose to ignore it as it was a big and reputed bank after all. But some people chose to pay attention to the warning signs and started to withdraw the money from their accounts. Seeing the bank almost going bankrupt, the RBI took an important step when it placed the money-starved Yes Bank under moratorium. The clarification that is attached towards its step was that the current financial situation of the Yes Bank was going low and that it had been battling bad loan book for a long time, unable to raise any money. The most troublesome situation was for the customers of the bank who spent most of the day queuing up outside ATMs and branches in an effort to withdraw their left money from the accounts. Recently, the RBI has released a draft plan “SCHEME OF RECONSTRUCTION” to revive the crisis-hit bank.
The current hope for the Yes Bank is State Bank of India who is planning to invest money and also holds 49% of its shareholdings.
HOW DID YES BANK FALL THIS DEEP?
Although the bank was in a difficult situation for the past year, no one guesses it would fall this deep because of its high reputation and good image. But this crisis is proof that reputation doesn’t matter when it comes to being bankrupt.
- The first reason for the failure was the domino effect of Infrastructure Leasing & Financial Services. Because of this, the bank was left with a growing pile of bad loans. There was a higher ratio of outgoing liquidity than incoming money.
- Secondly, there was a rising ratio of non-profit assets that doubled over the year of 2019 April-September to Rs. 17,134 crores. Because of this, the bank was unable to raise any capital to increase the numbers on its balance sheet.
- Due to the decline in the financial position of the Yes Bank, it had triggered the redemption of bonds by the investors and withdrawals of the deposits of account holders. At this point, the bank was facing a regular outflow of liquid assets, meaning, the withdrawal of deposits.
- Apart from the above-stated reasons, the bank also faced a serious issue of internal governance and practices being practised in recent years which was also another reason for the steady decline of the bank.
All of the above reasons convinced RBI to conclude that there was no effective revival plan and so for the benefit of the bank and it’s depositor’s there was no other alternative left other than to place the bank under moratorium.
IMPACT OF YES BANK CRISIS: ON CUSTOMERS
The effect of the crisis is intended to trigger a domino effect that is supposed to lead the collapse of various different financial institutions. Other than creating fear and declining the Indian economy, the Yes Bank crisis has also steamed up the global stock markets and has led to the biggest financial crash ever since the Great Depression of 1929. Another upsetting thing about this situation was the slow action of the RBI even though they were monitoring the situation since the past year.
The news of limiting the withdrawals from the accounts at Rs. 50,000 was truly upsetting for the customers and led to long queues of people claiming their money back.
For some special cases, with the approval of the authority or the competent authority, one can withdraw up to Rs. 5 lakh or the remaining balance in the account whichever of them is lowest.
A person will also have to make alternate arrangements your EMI other payments that are due to be debited from the Yes Bank account. Several financial institutions have reached out to their customers on social media asking for the alternative bank account’s details.
In addition to this, you will also have to delink your bank account of Yes bank with payment apps and other apps based on services like Zomato, Ola, Uber, etc.
Apart from all this, the ones having a salary account in the Yes Bank are most likely to be the most troubled of all. Given this horrible and grim situation, the Human Resources department of many companies will have to provide the available alternatives to their employees so that their upcoming or future salary is not compromised.
Even after the takeover of the RBI upon the gruesome situation, the faith of the depositors and even the loyal customers has been revoked from the private banks and financial institutions.
IMPACT OF YES BANK CRISIS: ON INVESTORS
In this mirror situation of the great depression, the investors are left with no other choice than to wait and have patience. The back, currently, has no liquid assets left to pay them off and cancelling or pulling out their investments right now will only end up in huge losses for them. It is too late for them now to take an exit from the affected schemes. Most of all, mutual funds will be highly affected. They are likely to be written off or be side-pocketed exposures towards Yes Bank.
Currently, it is a wait-and-watch kind of situation for everyone. Although the RBI is on the verge to launch a revival plan for the bank that is aimed at pumping fresh money into Yes Bank, however, understanding the current situation, the customers till cannot withdraw more than Rs. 50,000 from their bank accounts (certain situations being exceptional).
ANY PLANS FOR REVIVAL OF THE DECLINING ECONOMY?
Seeing the history of the world and the recent situation of our economy in the past decade, the Yes Bank crisis isn’t exactly a unique or altogether new situation for us to face. There have been past problems as well in mounting bad loans and this only reflects or shows us the underlying implications in the financial system of our country ranging from real-estate to power of the non-banking financial institutions. Instead of concentrating on the negative impacts, this crisis should also be analysed as a great opportunity for the stakeholders and for the RBI to have a revised look at its Prompt Corrective Action framework. As long as it comes to the government sector, It should carry out the reforms in the sector of finance. And lastly for the commercial banks and alternate banking systems to provide practical and more strict norms in cases of providing loans.
WHAT NOW? ANY REACTION OF RBI?
There have been some serious concerns about the kind of reconstruction that the RBI will need to design in order to put the bank back on the track. The RBI has placed a general public domain for the summary of the proposed scheme of the revival plans of the bank. In addition to this, great assurance has been given to the depositors that their money and all deposits are safe. Also, the staff is promised that their jobs will not be affected by the situation. The most satisfying fact of this situation is that the SBI has agreed to and expressed their willingness to help Yes bank and make an investment towards it. But again, the RBI and the government have to be careful in this situation and has to take planned steps while moving forward with any schemes or measures.
If tackled efficiently, this situation can be corrected and it is still not too late to put the economy back on track.