Yes Bank Crisis : Affect on indian economy - Yes Bank Crises

Hello friends, due to banking crisis in our country, YES Bank has collapsed after PMC Bank. Why did the Bank crisis happen? What is the effect of Yes Bank Crisis on you and the country's economy? How can Yes Bank be revived? 

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Overview Of The Story

Let us know the full story in this article - The story of Yes Bank started in 2004, when Rana Kapoor and Ashok Kapoor jointly founded YES Bank Company 2008 which saw the unfortunate death of Ashok Kapoor in 26/11 attacks, Which was followed by a legal battle between Ashok Kapoor's wife and Rana Kapoor, who would control the appointment of the board of directors, but this is not the important point in the story. 

Importantly, after 2008, it is alleged that Rana Kapoor, who was running Yes Bank, had aggressively failed to lend at high interest rates and was giving loans to people whose There was little chance of paying the pass so Rana Kapoor was playing a very high risk game.

UBS is a global financial services company that indicated in 2015 that YES Bank is seeing accelerated growth as they are lending to stressed companies. Stressed companies refer to companies that have a high risk of repayment of loans. So by now you have understood that there is only one reason behind YES Bank's crisis- bad loans and NPA loans are given to people and companies who cannot repay them and these loans become bad loans / NPAs. NPA means non-performing assets. If there is a delay of 90 days or more in the repayment of one's loan, then he becomes an NPA.

 The NPAs of YES Bank continued to grow slowly and in 2017, the Reserve Bank of India also took note of this and started monitoring YES Bank more vigorously, not only did the Reserve Bank of India focus on increasing the NPAs, but also They also observed that Yes Bank was hiding its actual NPAs, i.e. it has even higher NPAs, as they (RBI) had noticed a difference of Rs 3,000 crore between the actual figures and the fake figures reported by them. In September 2018, RBI ordered Rana Kapoor to vacate the CEO's chair if Rana Kapoor ceases to be the CEO of Yes Bank if Yes Bank is to be saved after January 2019 in November 2018.

 One chairman and two independent directors of the bank resigned. Along with all this, the rating of the bank continued to fall down. A rating firm- CARE rating firm gave very poor rating to YES Bank, another reputed rating firm, Moody's downgraded the outlook of YES. Negative from bank stable.

 In March, 2019, Ravneet Gill became the new CEO of the bank, but the problems were so severe that YES Bank reported its first quarterly loss in April 2019, after which its stock fell 30% the next day, taking its NPL ratio to 8%. I will talk about NPL ratio later.

 After November 2019, Rana Kapoor sold almost all the shares of YES Bank. His total value was 142 crores. This is despite the fact that last year he tweeted in September 2018 and said - Diamonds are forever, y Promoter shares of YES BANK are priceless to me. He considered the Yes Bank shares to be as valuable as diamonds and wrote in his tweet that he will pass on these shares to his three daughters and their children and I will write of my own will and instruct them that they should never buy these shares. Don't sell You can imagine how dire the situation must have been, while he was promising never to sell the shares because they were too valuable, he sold them a year later until this incident and by this time, the news was to follow. 

People should understand that the condition of Yes Bank is going to deteriorate when Rana Kapoor sold almost all his shares. You know the story after this: On March 5, 2020, RBI took the whole matter into its own hands, declared a moratorium and PLA, a restriction mentioned that everyone depositing their money in this bank would have to pay Rs 50,000 per month Can not withdraw more than Rs, except in cases of emergency. 

The stock of this bank fell and similarly news came around the Sensex that SBI could buy a bank. Then, SBI's stock fell, and on 8 March 2020, ED arrested Rana Kapoor on charges of cheating and money laundering. How the bank works, it is very interesting that all the money deposited by you in the bank is whole money. The amount deposited by all the depositors in the bank is not collected by the bank at one place and it is used to give loans to other people. Uses that money. This is the place from where the bank makes its profit at any point in time, if all the depositors, a bank wants to withdraw their money then the bank will not have that amount because it has used that money to give loans to other people. . In fact, RBI's requirement is that it should be 4% or more, i.e., the money that is deposited in the bank must have at least 4% of that money in cash, so that people can make up 4% of the total deposited money. Can take out This ratio is called the cash reserve ratio and RBI requires that they have nothing to maintain it at 4% or more. All banks do the same, but it usually happens that whenever a bank gives a loan to someone,

 They get that loan repaid. Overall, there is (money supply), but yes it is not so in the case of the bank. It gave loans and the money disappeared, so if everyone tries to withdraw money from Yes Bank, there won't be (enough) money.

 Also, when a bank is in a crisis, often people want to withdraw their money in panic. This is called a bank run. To avoid this, RBI imposes a restriction that money cannot be withdrawn beyond a certain amount. At a time because if everyone goes to withdraw their money, it will not be enough for that and it will push the bank but it also has the opposite psychological effect - that if RBI announces the ban, people get to believe That something is going wrong is because RBI is doing this and that is why withdrawing money is even more important. After all, this will also make the banks run, so it becomes very difficult to decide from RBI's point of view whether they should impose this ban or not.

Yes How to get loan from bank?

But let us come to the root cause of the problem. Which were the companies that were given loans and were not able to pay back?

 These companies were Cafe Coffee Day, DHFL, Cox & Kings, Anil Ambani's Reliance, Essel Group.

 In fact, the opposition has alleged that many of these companies have close friendship with Prime Minister Modi. For example, Anil Ambani, Subash Chandra, Zee Media Entertainment and in response, our finance minister raised fingers, as usual. Congress said that it was Congress's fault, and YES Bank's collapse was due to Congress, but if we look at the reports, we will see that most of the loans given by YES Bank after 2014 were given. Appearing in the loan book of Yes Bank, the loan book states that loans worth Rs 55,000 crore have been disbursed in 2014. By 2019, these loans have increased to Rs 2 lakh 41 thousand crore.

 So one of the questions that arises here is that despite being under the scrutiny of RBI since 2017, so many loans were given between 2017 and 2019 despite knowing that the bank's condition is deteriorating and still such companies Keep giving loan to him, why?

Another question arises that the Adani company stopped using Yes Bank a day before the announcement of the sanctions by the RBI, a month before the sanctions were announced by the RBI. Vadodara Smart City Development Company in Gujarat withdrew Rs 265 crore from the bank. Looking at all these things, a question arises whether the people close to the government already knew that the government was going to do this and hence they withdrew their money already? Or was it a mere co-occurrence?

How is the NPA situation?

The government is clearly going to tell you that all is well. But the reality is that the problem of NPA in our country has increased to such an extent that there is no major economy in the rest of the world where the conditions are so terrible.

What is NPL Ratio?

We talked about this in the first paragraph. The NPL ratio is the non-performing loan ratio, that is, how many bad loans are there in proportion to the total number of loans. In India, this ratio touched 11% last year, the world's worst NPL ratio, with some improvement this year but it continued to rise to this level.

 Major economies include USA, UK, Germany - the NPL ratio of these countries is generally less than 2%. Therefore, when I stated earlier in this article that the NPL ratio of Yes Bank has reached 8%, then (this Shows) 8 % is also a very bad ratio. Also, India's NPL ratio is already bad, with this, India's recovery rate is only 30% when compared with other countries. 

The recovery rate refers to the possibility of recovery of money in bad debts in India, these possibilities are only 30%. In the rest of the countries, the possibilities are around 80% so for these reasons investors hesitate to invest in India and it helps the Indian economy affects overall.

Is your money yes safe in the bank?

Despite all these things, if your money is deposited in Yes Bank today, then I tell you that there is no need to fear. Your money is safe and you will get it back. I am not calling this intelligence 100% confidence but 80% confidence that you will get your money back. 

I am saying this because YES Bank is such a big bank which the government cannot fail. Under any circumstances because so many people are dependent on it and if the depositors do not get their money back, it will cause the depositors to lose their faith in the banking system, not only Yes Bank customers but all other bank customers as well .

People will feel that their money is not safe in any bank, no matter how big the bank (hence they) will withdraw their money and due to this the entire banking system of the bank will collapse in not only YES bank but banks all over India.

That is why I am saying that the government will not let this bank fail under any circumstances and you will get your money back.

How will Yes Bank be saved?

 The government will give bail to this bank. This government is increasing the pressure on government companies and state-run bank SBI to buy this bank (YES bank).

 SBI has already said that it will buy 49% stake in YES Bank at a cost of Rs 2,450 crore. The rest have not been decided. It is being said that LIC can buy it. Other investors are expected to go and buy the rest of the shares of this bank but where is the money that SBI is investing in this bank coming from? This also raises the question that this money is taxpayer's money. Taxpayers' money is being used to bail out this bank.

 That in itself is a debatable question whether it is right to use taxpayer money and use government money to save private companies. The same question was raised in the USA in 2008 when the 2008 financial crisis happened but was correct.

 Now, there is no other option available. If this bank is allowed to fail, as I said, confidence in the entire banking system will pose another question, how often will the government do this? Banks fail time and again and SBI is repeatedly asked to buy from where will the government get the money? One thing is very clear that the government wants to collect this money by selling PSUs. For example, recently, the government has shown interest in selling the entire stake of BPCL.

 There is a recirculation plan by RBI to save Yes Bank like I said, SBI will buy 49% stake in this bank and they will try to increase and increase the value of this bank. They will try to increase the trust and confidence of the people in this bank due to which its share prices will increase. When share prices rise, they expect other investors to come to the bank to buy more stakes or the government is thinking that LIC will buy.

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