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Yes Bank Case

Yes, it is a case of bad governance at Yes Bank: - The bank under-reported NPAs by Rs 3,277 crore in 2018-19, displaying dishonest financial reporting. - Governance lapses led to a change in management in 2017-2018 as NPAs and impaired loans sharply increased. - From April-September 2019, NPAs doubled and the bank was unable to raise capital, showing declining financial position over an extended period. - Various issues related to high NPAs, poor disclosure and risky lending decisions forced the RBI to intervene and place the bank under moratorium.

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151 views3 pages

Yes Bank Case

Yes, it is a case of bad governance at Yes Bank: - The bank under-reported NPAs by Rs 3,277 crore in 2018-19, displaying dishonest financial reporting. - Governance lapses led to a change in management in 2017-2018 as NPAs and impaired loans sharply increased. - From April-September 2019, NPAs doubled and the bank was unable to raise capital, showing declining financial position over an extended period. - Various issues related to high NPAs, poor disclosure and risky lending decisions forced the RBI to intervene and place the bank under moratorium.

Uploaded by

udaya priya.b
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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YES BANK CASE STUDY

Q1) What are the issues requiring attention in YES BANK case?

 The growing pile of bank loans is a concern for Yes Bank that requires attention.
About 44 companies accounted for bad loans of Rs.34,000 crore of Yes Bank. The
bank failed to ensure the quality of the loans it was exposed to. As of 2017, the loan
book increased to 2.3 trillion in four years and the deposits were 2.1 trillion. The
proportion of impaired loans worsened its capitalization issues. This led to an increase
in Non-Performing Assets (NPAs) to about ₹17,134 crores in 2019. These issues
mainly occurred because of the fact that the bank failed to comply with the RBI
norms.

 The bank should have focused more on NPAs, because of which the bank was unable
to raise capital. About 10,000 crores of loans were declared as NPA, which was about
4% of its loan book at that time. This issue could have been avoided if the bank had
ensured proper compliance with the lending rules and if it had diversified its exposure
of loans to different sectors.

 Another important issue with the bank is the governance. Poor governance led to a
steady decline of the bank. When there was an issue in the bank, the top management
was not proactive, but instead chose to resign. Upon review of the asset quality in
2018-19 by RBI, many of the board members of Yes Bank resigned, and the founder
Rana Kapoor also was forced to resign. This led to the intervention if RBI in
appointing a new top management in order to resolve the issue.

 More attention should have been given to the financial position of the bank. This was
not effectively done, which led to the redemption of bonds by several investors, and
the withdrawal of deposits by several customers. This stressed the balance sheet and
liquidity of the bank even more. Hence, RBI had to set a cap on withdrawal to
Rs.50,000 to prevent the bank from collapsing. Also, several borrowers were on the
verge of defaulting, which was not identified by the bank before lending credit to
them.
2. Is yes bank socially responsible? Yes / No give reasons for your answer.

One of the main reasons for Yes Bank to collapse was because the bank under-reported NPAs to
the tune of Rs 3,277 crore in 2018-19. If they were really being socially responsible and ethical,
the bank should have had transparent disclosure norms and displayed only honest numbers in its
books. Its move to deceive its stakeholders by producing wrong numbers is completely
counterproductive and unethical. The bank has a total liability of 24 thousand crore dollars.
The bank has a balance sheet of about $40 billion. The Yes Bank has to pay $ 2 billion to
increase the capital base. With the economy in the throes of a persistent slowdown, the
prospects of banks’ burden of bad loans easing soon are limited. The fact that the  lender
ended up at the resolution stage, without ever being placed under the central
bank’s Prompt Corrective Action framework, also raises a question over how and why
Yes Bank eluded the specifically tailor-made solution to address weakness at banks. Its
serious corporate governance concerns, weak compliance culture, wrong asset classification, and
risky credit decisions forced the RBI to put it under moratorium.

Q3. Do you think it is a case of bad governance? give reasons for your answer.

It is a case of bad governance as the bank has been facing numerous issues over a long period
of time. Yes Bank, a medium-sized private sector bank, first ran into trouble following the
central's bank's asset quality reviews in 2017 and 2018, which led to sharp increases in its
impaired loans ratio and uncovered significant governance lapses that resulted in a change of
management.
From April-September 2019, Yes Bank suffered a doubling in gross non-performing assets
and due to this they were unable to raise capital to shore up its balance sheet. The bank under-
reported NPAs of approximately Rs 3,277 crore in 2018-19. They also faced many other
issues due to their declining financial position. Investors were redeeming their bonds;
depositors were withdrawing their deposits and the bank was facing continuous outflow of
liquidity. This shows that the bank had lost the trust of all its stakeholders and they finally had
to depend on SBI to save themselves from economic crisis.

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