One question keeps coming up: Has the government done anything positive in 2020 (a year after it came to power in 2019) that is? Well, apart from corona, economy and unrest, one particular positive can be drawn out of the year that was.
We are talking about Yes Bank, which once was on the verge of extinction, but has now a turnover of 333 billion Rupees. Its status has been upgraded from mid-cap to large-cap by the index funds. Furthermore, its Mar 2021 deposit target is a massive 2 trillion rupees!
The fall and rise of Yes Bank is like a roller coaster movie because such a bounce back in financial sector is quite unprecedented and rare. Remember that in 2020 beginning, when the Financial Tsunami hit the Indian shore (along with covid) Yes Bank was one of the few banks that crumbled.
Despite being India’s 5th largest private bank, it failed to meet the expectations of public. The NPAs grew larger by the day bringing it almost on the verge of death. But the collapse of such a large bank would be bad news and finance minister Nirmala Sitharaman knew this well.
Hence, an emergency break: On 5th Mar, Yes Bank was placed under moratorium (to much media outrage) and withdrawal limit was set to 50k per month. The board of Yes Bank was dissolved and former SBI deputy managing director & CFO, Prashant Kumar was put in charge.
A rescue plan was schemed the very next day, according to which, Axis, Kotak, ICICI, HDFC decided to join SBI as investors in the YES BANK. Nine months later, we learn the following:
- Govt intervention works, but even so, precaution is better than cure, meaning, such a situation should never have arisen in the first place
- A troubled bank can be saved and successfully so. But, Yes Bank like rescue plan was not put in action for PMC debacle. This means that bigger banks are safer
- Management can break of make a project. Thanks to Prashant Kumar, Yes Bank was back on its feet in just about nine months (like a rebirth of a sort)
How did Prashant Kumar manage to revive the Yes Bank?
- By regaining depositors’ confidence: He himself used to call 10-15 depositors every day
- By raising additional capital: 2 billion USD from 8 investors
- By intensive cost cutting: 50 branches were shut, operational expenses were reduced by 20%
One of his jobs was to recover loan money from defaulters, a list which included names like Anil Ambani, Subhash Chandra and DHFL. Although a difficult task, the bank is adamant to reclaim their money. All the while, they are back in business, 60k new accounts are opening every month, withdrawal limit has been lifted, plus they have returned 50k crore dues to the RBI!
Later in 2020, when Laxmi Vilas Bank was also in trouble, the Yes Bank formula was replicated on it to much success. First a withdrawal limit set, then it was merged with DBS India and now, the customers have no problem in accessing any bank services.
But, it’s not like everyone’s happy with the Yes Bank solution. Because, its AT1 bonds worth 8,400 crores were reduced to zero to carry out its revival. This has disturbed the bond-buyers, who feel cheated, hence, the case is now in court. But, despite the challenges, Yes Bank has netted a profit of 129 crores in Q2 (a three times jump amidst pandemic)!
As a result, its ratings are on the rise. From under-credit to stable category in November. Triple-B according to CARE.
So, finally, what can be learned from the Yes Bank story?
- Bank is not God, so you must keep its activities in check. Especially on its NPAs.
- Remember not to put all your eggs in one basket. Divide your savings among two or more banks.
- No bank is 100% safe, not even Govt bank, and especially not co-op banks.
- Bank deposit is not recommended for long-term savings. For that purpose, mutual funds, FDs are ideal.
Summing up: Yes Bank sure has recovered against all the odds. Let us call it a 2020 miracle! But that does not guarantee safety in the long run. As a customer of the bank, you must keep an eye on bank’s NPAs. You must become smarter because it is your money after all!