Banking Awareness

YES BANK, India’s fourth largest private sector bank is a high quality, customer centric and service driven Bank. Since inception in 2004, YES BANK has grown into a ‘Full Service Commercial Bank’ providing a complete range of products, services and technology driven digital offerings, catering to corporate, MSME & retail customers. YES BANK operates its Investment banking, Merchant banking & Brokerage businesses through YES SECURITIES and its Mutual Fund business through YES Asset Management (India) Limited, both wholly owned subsidiaries of the Bank. Headquartered in Mumbai, it has a pan-India presence across all 28 states and 9 Union Territories in India including an IBU at GIFT City, and a Representative Office in Abu Dhabi.

Appointment of RBI director for yes bank
Recently, the Reserve Bank of India (RBI) appointed an additional director on the board of YES Bank. The RBI here invoked its special powers given by the law as a precautionary measure.

What Has The RBI Done?
As per a stock exchange filing by YES Bank, the RBI has appointed former Deputy Governor R Gandhi as Additional Director on the board of YES Bank till 13th May ’21 or till further orders. The appointment has been made under Section 36 AB of the Banking Regulation Act, 1949. However, the RBI’s additional director can exit from the board even before the term ends.

When Can The RBI Trigger Such Special Powers?
As per the Banking Regulation Act, 1949, the RBI can appoint additional directors in the interest of the bank, to safeguard public policy or in the interest of depositors.

But Why YES Bank?
YES Bank has been in the news of late. One, it had to appoint Ravneet Gill as the Chief Executive after RBI denied a fresh term to founder Rana Kapoor over some corporate governance issues. Two, there was worry about YES Bank’s large exposure to ADAG and Essel Group. Three, the RBI had undertaken asset quality review in the past, which led to a jump in bad debts for the banks.

How Will The Additional Director Appointee Help?
RBI’s Additional Director is likely to ensure smooth transition to new management. RBI’s oversight is also likely to improve credit approval standards, reduce portfolio concentration and improve risk management for the bank, besides helping resolve bad debts.

What Are The Immediate Concerns For The Bank?
One, YES Bank has announced an asset watch list worth Rs. 10,000 crore for early signals of bad debt. Recognizing and resolving bad debt is an immediate concern for the bank. Two, as more write-offs loom, the bank desperately needs capital, else problems could compound further.

How Does The Balance Sheet Look Like?
The bank is not in good health. It has reported a loss of Rs. 1,506.64 crore for the quarter ended 31st March. The bank had recognized non-performing assets (NPA) of Rs. 3,480 crore. More worrying is the capital position. Its core equity capital (most reliable capital to fall back on if the bank fails) stands at 8.4%. Top-rated banks have core equity capital upwards of 11%.

Can The Bank Raise Money Immediately?
The issue of capital-raising is a challenge for the bank as ratings agencies have recently cut the bank’s ratings. The bank has received approval from the board for raising equity capital of Rs. 7,000 crore. But investors’ appetite may not be strong enough. The bank will also need capital if it wants to grow its loan book. The bank is aiming for a 15% to 20% growth in the coming quarters.

Should Investors Worry?
The Additional Director’s oversight may help correct some issue faced by the bank. But many investors fear that there could be more skeletons in the closet for the bank as far as its corporate portfolio is concerned. Yes Bank is a much larger bank and any failure here could have serious systemic implications.
Gandhi was RBI Deputy Governor from April 2014 to April 2017. He was in charge of portfolios like banking operations and development, non-banking supervision and risk monitoring.
Typically such appointments are made by the RBI to ensure a close supervision on a bank. Earlier Dhanalaxmi Bank and Lakshmi Vilas Bank had RBI-appointed directors on their boards.

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