Editorial

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Updated on


March 10, 2020


Published on


March 10, 2020

Signs of trouble were visible as early as in 2017 when the bank became a casualty of the RBI’s annual risk-based supervision and declared significant divergence in bad loans pertaining to FY16

Could YES Bank’s catastrophic end — the private sector bank that was once the darling of the market, and is currently the custodian of nearly ₹2 lakh crore of public deposits — have been avoided? As far back as in May last year, the RBI used its power and appointed R Gandhi, former deputy governor, as additional director on the board of YES Bank. The appointment followed the bank’s disastrous performance in the March quarter, when it posted a loss of ₹1,500 crore and saw a nine-fold increase in provisions. But almost a year later, the regulator’s rescue plan has left small savers bearing the brunt of regulatory and supervisory acts of omission and commission.

Signs of trouble were visible as early as in 2017 when the bank — which emerged unscathed from the RBI’s asset quality review exercise in 2015 — became a casualty of the RBI’s annual risk-based supervision and declared significant divergence in bad loans pertaining to FY16. A few months later it reported much steeper bad loan divergences pertaining to FY17. With the bank reporting huge divergences of ₹4,176 crore and ₹6,355 crore for these fiscals, corporate governance issues and the fast deteriorating asset quality had set off alarm bells among investors and analysts. A year later the RBI asked Rana Kapoor (who sold his entire stake in YES Bank by the end of 2019) to step down from his CEO position. The entire sequence of events is akin to a badly scripted play that could only end poorly. Yet the regulator dragged its feet and remained a silent spectator to the endless charade put up by the new management of seeking to raise capital from several investors. Paying heed to the repeated calls from various market players and stakeholders over the past year to step in, could have saved the RBI from the embarrassing position it finds itself in now. Importantly, the Indian financial system could have been spared yet another turbulence that could cost dearly this time.

The regulator and auditors have some serious questions to answer. YES Bank is the fifth crisis that has hit our financial system — after PNB, IL&FS, DHFL and PMC Bank — in just two years. Despite numerous audits and inspections by the regulator, every crisis that has unfolded throws open huge gaps in the supervisory and audit processes. It also raises questions over the murky role of auditors in the entire episode, much like in the PNB scam. The bank’s board — of both professional and independent directors — has also clearly failed to safeguard shareholder interests. The RBI on its part will have to critically introspect its audit and inspection processes. After all, the buck has to stop somewhere. In the ongoing reconstruction and SBI’s attempt to rope in other investors to salvage YES Bank, the RBI will have to be quick and transparent. Restoring the faith of small savers will be a tall task hereon.

Published on


March 10, 2020