Yes Bank is a new generation private sector bank. (Called new generation because it was fully computerised from its inception unlike the old private sector banks like Karur Vysya Bank which started with manual operations and then became computerised.) So far, so good. But this is also a 'rogue bank'. A rogue bank is one which makes substantial profits for some time and then, when profits start waning, starts fudging books.
NPA figures reported by the bank in the last two years were far less than what RBI inspectors discovered. Technically the bank did not come under the PCA (Prompt Corrective Action) net of RBI though the regression of the bank was clear. (The precipitous fall of Yes Bank points to the need for revisiting the PCA norms.)
Credit-Deposit Ratio (CD Ratio) speaks volumes about a bank. Some comparative figures (as on 31-03-2019) are:
Yes Bank - 106%
ICICI Bank - 90%
HDFC Bank - 89%
Kotak Mahindra Bank - 91%
Public sector banks typically have CD Ratio around 80% because they are risk-averse and not aggressive. Efficiently managed private sector banks have CD Ratio about 90% CD Ratio above 100% indicates that loans are given not only from funds sourced from deposits but also from borrowings. This is not healthy for a bank.
Borrowings of Yes Bank are very high in relation to its deposit. Following figures speak for themselves.
Deposits Borrowings (Rs. Crore)
Yes Bank 2,27,610 1,08,424
ICICI Bank 6,52,920 1,65,319
HDFC Bank 9,23,141 1,17,085
Kotak Mahindra Bank 2,25,880 32,248
A part of borrowings of Yes Bank is in the form of IPDI (Innovative Perpetual Debt Instruments.) RBI has proposed that these IPDIs (Additional Tier 1 capital) will be totally written down. IPDI investors are likely to legally contest this proposal despite Basel III provisions. These investors claim that their interests cannot be subordinated to the interests of shareholders. In other words, the shareholders also need to take a hit directly from the bank when the rights of IPDI investors are adversely affected. These investors are on strong legal ground. It may turn out that when the chickens are counted, the present paid-up capital is fully written off and therefore IPDI investors cannot protest. It is worth noting that the shareholders of Global Trust Bank had their investments totally eroded.
NPA figures reported by the bank in the last two years were far less than what RBI inspectors discovered. Technically the bank did not come under the PCA (Prompt Corrective Action) net of RBI though the regression of the bank was clear. (The precipitous fall of Yes Bank points to the need for revisiting the PCA norms.)
Credit-Deposit Ratio (CD Ratio) speaks volumes about a bank. Some comparative figures (as on 31-03-2019) are:
Yes Bank - 106%
ICICI Bank - 90%
HDFC Bank - 89%
Kotak Mahindra Bank - 91%
Public sector banks typically have CD Ratio around 80% because they are risk-averse and not aggressive. Efficiently managed private sector banks have CD Ratio about 90% CD Ratio above 100% indicates that loans are given not only from funds sourced from deposits but also from borrowings. This is not healthy for a bank.
Borrowings of Yes Bank are very high in relation to its deposit. Following figures speak for themselves.
Deposits Borrowings (Rs. Crore)
Yes Bank 2,27,610 1,08,424
ICICI Bank 6,52,920 1,65,319
HDFC Bank 9,23,141 1,17,085
Kotak Mahindra Bank 2,25,880 32,248
A part of borrowings of Yes Bank is in the form of IPDI (Innovative Perpetual Debt Instruments.) RBI has proposed that these IPDIs (Additional Tier 1 capital) will be totally written down. IPDI investors are likely to legally contest this proposal despite Basel III provisions. These investors claim that their interests cannot be subordinated to the interests of shareholders. In other words, the shareholders also need to take a hit directly from the bank when the rights of IPDI investors are adversely affected. These investors are on strong legal ground. It may turn out that when the chickens are counted, the present paid-up capital is fully written off and therefore IPDI investors cannot protest. It is worth noting that the shareholders of Global Trust Bank had their investments totally eroded.
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