Yes Bank NPA Issue
Non-Performing Asset (NPA) can be described as a loan or advance for which the principal or interest payment remained overdue for a period of 90 days. NPAs can be classified into three categories based on the length of time overdue and the probability of repayment: substandard asset, doubtful asset or loss asset. With the increase of NPA the ability of banks to lend more funds reduces. Increased incidence of NPAs badly affects on the economy of the country.
“A bank is a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain.” – Robert Frost
“Bankruptcy is a legal proceeding in which you put your money in your pants pocket and give your coat to your creditors” – Joey Adams
STATISTICS – What Numbers have to Say?
- Among BRICS countries, India has the highest level of NPA with 9.9% ratio, and according to a report by CARE Ratings, India is ranked fifth on the list of countries with the highest levels of NPAs.
- Money owed by Indian public sector banks as NPA is decreased from 7.5 trillion rupees to 6.8 trillion rupees in 2020, showing slow but slight relief for India’s economy in terms of NPA at public banks.
- Yes Bank had gross NPA of almost 79 billion Indian rupees in the financial year 2019.
- Majority of Yes Bank loan book consists of corporate loans and 96% of NPAs are of corporate loans.
- ICICI Bank had the highest NPA value across all private commercial banks in the country, followed by Axis Bank and HDFC bank in 2019.
DESCRIPTION – Let’s take a Deep Dive
In 2004, Rana Kapoor and Ashok Kapoor together founded Yes bank. This bank mainly deals with banking and financial services, UPI services etc. It was once the 4th largest private sector bank in India but now it is on the verge of collapse. This bank started giving a large amount of loan to financially distressed companies which were in losses. Yes bank has made funding to most of the big companies which are under insolvency now like IL&FS, DHFL, Anil Ambani’s Reliance group, etc.
It leads to increase in NPA of the bank. But they misreported it for some period of time by showing less NPA value than actual. Eventually, RBI found that actual NPAs of the bank were 5 times more than reported NPA.
If Yes bank was allowed to collapse, then it will create fear and loss of trust in the private sector bank. So to avoid this RBI came to rescue the bank by announcing ‘Yes Bank LTD. Reconstruction Scheme 2020’.
Yes Bank Stats
- Market Capitalization: Rs. 38,000+ crore
- Gross NPA: Rs. 32,344 crore
- Net Profit as of 1 Dec 2020: – Rs. 16, 428 crore
What RBI stated in reconstruction scheme
- To avoid collapse, RBI imposed a moratorium on the bank and decided to replace entire top management.
- New board will be formed for Yes bank, consisted of one MD and CEO, Three non-executive directors and two nominee directors appointed by investor bank. If needed RBI can appoint an additional director.
- Yes Bank will have to submit information as per the requirement of RBI from time to time.
- A limit of Rs. 50,000 has also been imposed on withdrawal of deposits.
- SBI has shown its interest to invest in Yes bank.
- ICICI Bank, HDFC Bank, Axis Bank and Kotak Mahindra Bank, as well as investors Radhakishan Damani, Rakesh Jhunjhunwala and the Azim Premji Trust, are also interested to invest in Yes Bank.
- SBI will hold the largest share of 45% with others holding 49% together.
- As per the proposal by RBI, Public sector banks will bring in Rs. 30,000 crore as bulk deposits
It is a challenging task for Yes bank and RBI to overcome this problem without losing the trust of people. RBI should keep an eye on Yes bank for some future period to see whether it is going in the right direction or not. As Yes Bank is still at a leading position in providing UPI services they can generate more revenue from there. This bank should definitely work towards maximizing CASA ratio because it is seen as a measure of company’s indicator.
*The CASA ratio indicates how much of a bank’s total deposits are in both current and savings accounts.
Author – Vaishnavi Guntoorkar