NEW DELHI: The question swirling around in banking circles has been what took the Reserve Bank of India, the country’s central banker, so long to act in the case of the troubled Yes Bank?
The warning flags have been out for long in Yes Bank’s case. In 2017, RBI discovered that the bank had been under-reporting bad loans.
Analysts who started looking at the ‘success story in banking’ more closely after this, soon found tell-tale signs of high-risk lending by Yes Bank.
An apocryphal story doing the rounds in Mint Street was that if no bank was willing to risk lending to a firm, Yes Bank was always willing to say “yes”.
The bank’s reported list of borrowers seems to bear the story out somewhat, with the list including the likes of IL&FS, Reliance Infrastructure, Dewan Housing, Jet Airways, CG Power, Café Coffee Day and Altico.
By November 2018, Moody’s downgraded Yes Bank citing governance issues.
Next year, in 2019, it downgraded the bank once more, citing stressed assets. The same year, RBI discovered that Yes Bank had under-reported bad loans by Rs 3,277 crore as of March 31, 2019. It also reported its first quarterly loss of Rs 1,506 crore in FY2019.
Strangely even, as the mess in its accounts was becoming public information, the bank’s loan portfolio kept rising. In FY2014, Yes Bank’s total advances stood at just Rs 55,632 crore; by FY2017, it had risen to Rs 1,32,262 crore, about 2.5 times.
However, despite demonetisation and the subsequent slowdown in the Indian economy, Yes Bank’s lending kept growing at a fast pace and by end-March 2019, total advances stood at Rs 2,41,499 crore, an 82 per cent growth since FY2017.
In January this year, Yes Bank’s audit committee chairman Uttam Prakash Agarwal resigned, citing “serious concerns” over “corporate governance, failure of compliance, management practices and the manner in which affairs of the company are being conducted”.
“The RBI has a supervisory role over all banks and is responsible for enforcing banking standards and addressing red-flag issues. When, how and at what time it acts are of crucial significance to the overall health of the banking industry,” said Sanjay Bhattacharyya, former managing director of State Bank of India.
North Bloc mandarins point out that despite the pointers to the situation within Yes Bank, RBI never placed it under the Prompt Corrective Action, a straight-jacket on lending and other actions imposed on banks doing badly.
However, in RBI’s defence, bankers point out that all along it believed that Yes Bank could be pulled through, as several foreign financial firms were thronging its door as possible investors in Yes Bank.
These were big names including Citax Holdings, JC Flowers and Tilden Park Capital Management, and may have proven to be the right match for Yes Bank.
The only problem was that they never said “yes” to the bank after initial due diligence or offers.
Promises, or not!
Bankers point out that all along, RBI believed that Yes Bank could be pulled through, as several foreign financial firms were throng-ing its door as possible investors in Yes Bank.
Rs 1,32,262 crore was Yes Bank’s total advances by FY 2017, a 2.5 times increase from its total advances in 2014, which stood at just Rs 55,632 crore.