Introduction To Yes Bank Limited
Yes Bank Ltd (hereinafter referred to as YBL) is engaged in providing a range
of banking and financial services. The Bank operates in four segments: Treasury
Corporate/Wholesale Banking Retail Banking and Other Banking Operations. Since
inception in 2004, YBL has fructified into a ‘Full-Service Commercial Bank’ that
has steadily built Corporate Banking, Financial Markets, Investment Banking,
Corporate Finance, Branch Banking, Business and Transaction Banking.
The YBL in 2018 had published the Bank Sustainability Performance in which
certain aspects changed liquidly which had deep repercussions on the share price
of the bank, this was primarily done due the asset valuation record of the Bank
which had deteriorated ever since.
Fall of Erstwhile Yes Bank Limited
Pursuant to the Security Exchange Board of India vide Circular SEBI/ HO/ MIRSD/
DOS3/CIR/P/2019/70 dated 13.06.2019 has obligated all the CRA’s registered with
the board to disclose the Credit Rating Norms, through which it grants entities
ratings which later seek credit from financial and non-financial institutions.
This action sought by the Securities Exchange Board of India (hereinafter
referred as SEBI) as recommended by the Report of the Committee on
Comprehensive Regulation for Credit Rating Agencies by Capital Markets Division,
Ministry of Finance came into effect right after the Indian Leasing and
Financial Services Ltd fiasco, in which faulty scheme of CRAs was exposed.
Acting swiftly, on the issue the SEBI came with a Circular, directing all the
CRAs impaneled with SEBI to disclose their norms for Credit Rating. This action
came to light after the Indian Leasing and Financial Services (hereinafter
referred to as ILFS) had declared the NPA’s.
Thereafter, YBL under SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015 wrote a letter to the National Stock Exchange NSE and Bombay
Stock Exchange BSE dated 24.12.2019 disclosing High levels of slippages which
had led to an increase in Gross NPA from 5.01% in Q1FY20 to 7.39% in Q2FY20, PCR
is maintained at 43.1%. Resolutions have been slower during H1FY20. The Bank’s
Gross NPA has increased from Rs. 7883 Cr in FY19 to Rs. 17135 Cr in H1FY20,
resulting in a net increase of ~ Rs.5000 Crore in each of the first two-quarters
The aforementioned figure revealed by Brickwork Ratings (hereinafter referred to
as BWR) had relied upon the Bank financials up to September 30, 2019,
publicly available information, and information and clarification provided by
the Bank's management. Pursuant to this BWR had downgraded the Tier I Bonds and
Innovative Perpetual Debt Instruments from BWR A+ to BWR A-. The cautious
Financial Institutional Investors (hereinafter referred to as FII) had
commenced exiting the company after the above facts came to light. This led to a
constant fall of the YBL stock price from Rs. 367 (August 2018) to Rs. 16.1
The following reasons led to the 05.03.2020 announcement by Reserve Bank of
India(hereinafter referred to as RBI) whereby:
In exercise of the powers conferred under 36ACA of the Banking
Regulation Act 1949, the RBI had, in consultation with the Central Government,
superseded the Board of Directors of Yes Bank Ltd. for a period of 30 days owing
to a serious deterioration in the financial position of the Bank. This had been
done to quickly restore depositors’ confidence in the bank, including by putting
in place a scheme for reconstruction or amalgamation. Shri Prashant Kumar, ex-DMD
and CFO of State Bank of India has been appointed as the administrator under
Section 36ACA (2) of the Act.
Therefore, the above event led to RBI superseding the board of YBL the
explanation which was given was owing to a serious deterioration in the
financial position of the Bank, further under Section 45 of the Banking
Regulation Act, 1949, the RBI had imposed a moratorium which limited the rights
of the creditors/ bank holders.
Rescue By Reserve Bank of India
The moratorium which was imposed on 05.03.2020 had limited the withdrawal limit
to Rs. 50,000/- and the IMPS and NEFT systems were shut down pursuant to the
order. Amidst the above condition, RBI had on 06.03.2020 placed in the public
domain a draft scheme of reconstruction of the Yes Bank Ltd. The Reserve Bank
invited suggestions and comments from members of the public, including the
banks' shareholders, depositors, and creditors on the draft scheme. The Yes Bank
Ltd. was placed under an order of moratorium on March 5, 2020, which will be
ffective up to April 3, 2020, however, due to the speedy acquisition process
the moratorium was lifted on 18.03.2020.
Revival of Yes Bank Limited
State Bank of India (hereinafter referred to as SBI) had expressed its
willingness to make an investment in Yes Bank Ltd. and participate in its
reconstruction scheme. As per the reconstruction scheme, 49% of equity shake
would have to be acquired to which the SBI had agreed for a consideration of Rs.
The following entities have agreed to invest in YBL pursuant to the reconstruction/ bailout plan:
||State Bank of India
||49% of Equity Stake
||Housing and Development Finance Corporation (HDFC)
||Industrial Credit Investment Corporation of
India Bank (ICICI)
||Axis Bank Limited
||Kodak Mahindra Bank
||IDFC First Bank
||Life Insurance Corporation
The above investors would be entitled to shares of Rs 2 each of Yes Bank
Limited, for cash, at a premium of Rs 8 per equity share. As approved by the
Union Cabinet and notified in gazette further, Disclosure under Regulation 30
and 51 of SEBI (LODR) Regulations, 2015 by YBL. The following is called YES Bank
Limited Reconstruction Scheme, 2020.
Key Provisions of The Yes Bank Limited Reconstruction Scheme, 2020 And Their
- There shall be a lock-in period of three years of this Scheme to the
extent of seventy-five per cent. in respect of:
(a) shares held by existing shareholders on the date of such commencement;
(b) shares allotted to the investors under this Scheme.
However, Retail Investors holding less than 100 shares have been exempted
from this provision. This step was much needed as it would prohibit market
manipulation practices which YBL shares have been prone to in recent times.
- Mandatory Lock-in period for 26% stake infused by SBI by the RBI, therefore
giving market stability to the Bank and preventing it for any adverse action
under the SEBI (Substantial Acquisition Takeover Code) Regulations, 2011 by
fixing the threshold to lock-in, therefore exempted SBI from the above rule.
- The authorized capital of the lender has been increased to Rs 6,200 Cr. from Rs
1,100 Cr., that the scheme had been approved with the objective of protecting
the interest of depositors and providing stability to YBL as well as to the
entire financial system.
- All the employees of the Reconstructed bank (YBL) shall continue in its service
with the same remuneration and on the same terms and conditions of service
(T&C), including terms of determination of service and retirement, as were
applicable to such employees immediately before the Appointed date, at least for
a period of one year.
These provisions were in consequence with the plan which RBI had proposed and
successfully executed. However, since a consortium of private lenders has helped
YBL to resurface, the implication of it would be volatile in the near future.
Implication of This Reconstruction
This reconstruction again has been a tactic by the RBI to conceal its own wrong,
since it had never raised any red flag when the bank led by the former Managing
Director and CEO Mr. Rana Kapoor was aggressively giving loans to entities with
minimal creditworthiness. Further, till 2018 there was rampant market
manipulation whereby high volumes of the shares were traded to keep the prices
up float since the fundamental and technical analysis of the company was always
The fate of retail investors who have invested in the shares of YBL would also
be recommended to pull out their investments since RBI’s three-year lock-in
period is a gimmick once the period is over the FII would start pulling out
their money and again the retail investors would suffer. Therefore once the bank
commences stable operations and is up float the retail investors should exit.
Indian Economy which is undoubtedly going through a slow down and a phase in
which retail investors are demotivated to invest in equity and liquidity funds
due to the constant increase in Volatile Index (VIX) which the Reserve Bank of
India, Government of India have utterly failed to control.
Further, since the government in adherence to the Basel-III Norms has written
off more than 8,000 crore worth Tier-I Bonds, the consequence of this sovereign
action will affect the confidence in the domestic bond market.
Written By: Aadarsh Kothari