Top 5 Reasons Why Yes Bank Failed

The Reserve Bank of India has taken charge of Yes Bank in an effort to save it from further deterioration. With its shares down by nearly 85%, Yes Bank was ousted from Sensex and Nifty. Superseding the Bank’s board, RBI has capped the withdrawal limit at Rs. 50, 0000.

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In this article, we will try to analyze why Yes Bank has crashed in the first place despite being run by highly talented professionals. Let’s see why the Government has to step in to save the day for Yes bank.

Top Reasons for the Collapse of Yes Bank

1. Declining Financial Condition 

The financial position of Yes Bank has deteriorated mainly because of its failure to raise capital to meet losses resulting from bad loans and downgrades. In their attempt to big profits, Yes Bank had granted easy loans to every incompetent company.

Some of the beneficiaries of these loans include IL&FS, Jet Airways, Dewan Housing, CG Power, Cox & Kings, and Cafe Coffee Day. Most of these businesses suffered heavy losses and reported a negative growth rate.

2. Governance Issues

According to RBI, the governance at Yes bank has some serious issues. RBI had been scrutinizing the Bank for a long time and noticed many regulations during this time. For instance, the Bank had this peculiar habit of under-reporting their NPA’s. They did not report the NPAs of whopping Rs. 3,277 for the FY 2018-19.

Additionally, some of their board members, including Ashok Chawla, Rentala Chandrasekhar, and Vasant Gujarati, have resigned recently, which further mounted troubles for the Bank. Taking note of the malpractices going on in the Bank, RBI had to send a former Deputy Governor R Gandhi to the Bank’s board.

3. Lack of Investors

The Bank tried every trick in the book to attract investors but failed to do so. There were a lot of discussions, but nothing happened.

Additionally, Yes Bank was witnessing another crisis of liquidity outflow. It means a lot of customers had been withdrawing their deposits. That’s the reason why RBI has capped the withdrawals.

Although Bank was continuously in touch with the Reserve Bank to find practical ways to get liquidity and balance back on track, none of the investors took any concrete step to invest the needed money in the Bank.

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4.Greed to Earn High Profits the Easy Way

To enhance their profits, the bank officials chose to give loans on easy terms without proper documentation and ensuring if the company had the capacity to pay back the money. They were making numerous deals, sometime directly with the promoters, to make high profits in a fast and easy way. But little did they know that all this rush to make quick money will ultimately lead to their demise.

5. Absence of Any Viable Revival Plan

The only way to save and restructure the Bank was the market-led revival. RBI says that it holds numerous discussions with the management to start such a revival process, but nothing materialized.

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