(Last Updated On: August 6, 2020)

Yes Bank used to be the 4th largest private bank of India. It had been a trusted intermediary for not just depositors but also companies like Swiggy, Flipkart, and PhonePe as the only banking partner for their UPI transactions. In fact, 35% of all UPI transactions that took place were through Yes Bank itself. And, then what came as a big shock for many, on 5th March 2020 RBI placed a moratorium on the bank causing a state of chaos in the country. What resulted in this? Is Yes Bank Safe? What about Depositors Money? And, how to grasp the facts and figures of its falling share price?

If you’re a depositor or shareholder in the Yes Bank and currently in a state of panic due to the crisis and fall out of the bank, this article is for you. We are going to critically analyze the whole situation to deduce the state of your money right now. What the government is doing? And more importantly, what can you do about it?

So, let’s start with the question of What exactly happened in this entire banking saga? How did a top level bank suddenly drown? Was it a sudden thing or an elaborate chain of events that lead to it? Let’s find out more on it.

Yes Bank: The Story so far

The tale begins in 2004 when Rana Kapoor and Ashok Kapoor founded Yes Bank. The events unfolded smoothly until 2008 when director Ashok Kapoor unexpectedly died in the 26/11 attacks. After that Rana Kapoor took control of the whole company and it witnessed tremendous expansion and growth. However, In 2015, a Global financial company UPS pointed out that the sudden growth of Yes Bank was due to granting loans to stressed companies (most likely not able to return loans) on high-interest rates.

In addition to this, two years later RBI pointed out the Bank was hiding its NPA (Non-Performing Assets) and revealed a difference of 3000 crores!

It was all downhill from here. In lieu of the current events and the deteriorating state of the bank, RBI in September 2018 ordered Ashok Rana to step down from the CEO position. Following this 1 chairman and 2 individual directors of the company resigned as well and the bank’s ratings kept deteriorating. In March, a new CEO( Navneet gill) got appointed in hopes to better the situation but the bank was already in a puddle so deep, it was hard to recover at this point. It’s NPL (non-performing loans) reached an all-time high of 8% and stock value fell by 30% in April.

Who wouldn’t worry about such a sharp decline in stock price? The founder itself sold all of his stocks of Yes Bank in November worth 142 crores. Looks like Ashok Rana saw the fall out coming from here.

Finally, in March 2020, RBI took the matter in its own hands and placed a moratorium i.e. a restriction that no depositor whose money is in Yes Bank can withdraw more than 50,000 in a month, all this to avoid panic withdrawal and let the bank function. In the same month, Enforcement Directorate(ED) arrested Rana Kapoor for fraud and money laundering allegation. As of the quarter ended December 2019, Yes Bank’s reports showed net losses worth Rs. 18,564 crores. This caused a whole lot of mayhem in the market.

Comparing Yes Bank’s and PMC’s Crisis

The last time this country saw a restriction being imposed on a commercial bank by RBI was the Punjab and Maharashtra Co-operative Bank crisis, which got people wondering if Yes Bank’s is worse.

The case of both the banks is quite similar: Increased NPAs and NPLs. In fact, the companies to which both these banks provided illegal loans to, are branches of the same tree. Confused? Let us take you through it.

So, PMC gave an illegal loan to HDIL which is a real estate company of the Wadhawan Family. And, Yes Bank gave the loan to DHFL company which is also a business branch of the Wadhawan Family. In the PMC crisis of 2019, Kapil Wadhawan (Director) was arrested.

Even though the cases may see similar, the handling of communication has been very different, with the Finance Minister assuring the depositors that their money in Yes bank is safe. Moreover, PMC depositors were caught unaware, whereas Yes bank’s issues had been the talk of the town months before the moratorium announcement. Further, PMC was a regional bank with around 11,000 crores in deposits and Yes Bank is national with 2 lakh crore in deposits. No doubt, the Yes bank’s troubles are on a much bigger scale than the PMC crisis. What do you think?

Now, coming back to the initial question, What about the depositors’ money kept in Yes Bank?

Is Your Money Safe in Yes Bank? 

Yes. A sigh of relief!! Your money will not be lost by the Bank. Finance Minister Nirmala Sitaraman assured depositors that their money is safe in the bank and that the government is coming up with reconstruction scheme for the bank.

Yes Bank Reconstruction Scheme

With SBI as the major investor, followed by HDFC Ltd., ICICI Bank, and Axis Bank are infusing money in the bailout plan. SBI’s stake shall reach 45% while HDFC and ICICI at 6% each and Axis with 3-4% only. R K Damani, Rakesh Jhunjhunwala and Azim Premji Trust shall own around 3% stake in the bank.

Now, look at it this way, Yes Bank has been a popular bank with thousands of employees, shareholders, and depositors. If money deposited in such a big bank is lost, people will lose faith in the whole banking system altogether.

How should I know which bank will not commit illegal loans or go bankrupt? The government can not afford such a stain on its banking system.

So, it will definitely come up with more concrete steps to keep depositors’ money safe in any bank, for that matter. But, still a common man like you and me gets scared in this scenario. Isn’t it? 

Another interesting story to read, How Mukesh Ambani made Reliance Industries debt-free? And, won investors’ interest!

What can You Do about it? Lessons Learned

The whole situation teaches us, as investors, a few lessons for better handling of finances in the future. Let’s look at them:

1. Diversify Your Portfolio:

We can not stress this enough. Always diversify your savings as well as investment portfolio. Keep in it portions at different places be it an intermediary or asset. If you put your eggs in one basket, it could collapse due to the inevitable uncertainty feature of the market. For example, while saving go for different banks with a varied rate of interests and while investing go for a suitable asset allocation plan.

2. Don’t Panic:

Panic causes irrational decisions that are never good for your financial health. There is a body of the RBI called The Deposit Insurance and Credit Guarantee cooperation (DICG) which ensures all your deposits with commercial banks. which means, even if any loss occurs, you will be compensated to some extent by this statutory body.

3. Transfer your EMIs and SIPs elsewhere:

Due to the restriction of Rs.50,000 withdrawal, paying EMIs and SIPs could be a problem. Make sure to shift these monthly payments with another bank. Shifting banks is easy, just reach out to the lender fill up a form and you’re all fixed. The same is with SIP payments too, it can easily be handled by net banking or by reaching out to your financial advisor.

Yes Bank Share Price: 

The Yes Bank Share Price stands at Rs.25.60 as on 10th July, 2020.

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Yes Bank Crisis: The Bottom Line

Our country’s banking state is not very well-off, to say the least. Last year the NPL touched 11% being the world’s highest. Efforts are being put to improve this number. In the budget announced this fiscal year the compensation by DIGC increased from Rs. 1 lac to Rs. 5 lacs to protect the investor rights.

But in the end, it’s the tax payer’s money they’re using to rescue these drowning private banks. We can just hope all goes well and the banking situation is improved soon. Until then, Don’t you worry, Government will take care of this banking crisis like many others in the past. Stay calm and follow the updates!

No one likes bearing these kind of risks like the Yes bank crisis, especially when it comes to their hard-earned money. What are your thoughts after reading the Yes bank story so far? Feel free to share your opinions.