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Yes Bank collapse countdown begins in 2018, Odisha govt looked the other way!

In India, RBI identified only three banks namely State Bank of India, ICICI Bank Ltd. and HDFC Bank Ltd as Domestic Systemically Important Banks, which means such entities cannot be allowed to fail. Huge withdrawals pushed C-D ratio of Yes Bank to 100% in 2018-19, still Odisha govt/SJTA opened 6 TDRs in Mar 2019

Bhubaneswar: Eminent economist, analyst and author Walter Bagehot had once said, “Adventure is the life of commerce, but caution is the life of banking”. Odisha government has exactly thrown the ‘caution’ to winds as it stayed ‘extra’ loyal to Yes Bank, despite signs of sinking visible since 2015.

As the Sri Jagannath Temple Administration (SJTA) has a fixed deposit account worth Rs 547 crore in Yes Bank, and as per YES Bank’s written letter to SJTA, bank will return the fund in three phases this month – on March 19, March 23 and March 29, but with RBI placing the Yes Bank under moratorium and putting restrictions on withdrawals above Rs 50,000, the SJTA cannot withdraw it atleast till April 30, 2020.

Some reports also suggest that since capital infusion takes time, and priority will be given to small retail investors, SJTA withdrawals may see a further delay.

Since Odisha government was caught napping, the ruling BJD has overnight become a punching bag for the opposition parties in the State. The opposition lambasted the government for not doing enough to pull out its deposits from the crisis-ridden bank in time.

And the issue has rocked the State Assembly today on the opening day of Budget Session -2. After many adjournments, House has been adjourned by Speaker till tomorrow.

Why Opposition are up in arms?

Consider the analysis. Yes Bank had hogged headlines in 2018-19, when the withdrawals were so huge that the bank had recorded a credit-deposit ratio of over 100 per cent. In simple, C-D ratio of over 100 per cent means bank’s credit portfolio has been more than the deposit amount it had in the year.

But the shocker here is Odisha government /SJTA had opened as many as six TDRs (Term Deposit Receipts) in March 2019, when in 2018-19 Yes Bank had witnessed a near rundown on its deposits.

Why customers made huge withdrawals in 2018?

There is a context to the withdrawals. Consider this: In September 2018, RBI refused to give Chief Executive Officer (CEO) Rana Kapoor an extension to his term. And Kapoor had to step down by end of January 2019.

The reason RBI cited then was: “Persistent governance and compliance failure reflected by the bank’s highly irregular credit management practices, serious deficiencies in governance and a poor compliance culture”.

In November 2018, Moody Investors Services downgraded its ratings to non-investment grade and had also changed its outlook to ‘negative’ from ‘stable’.

Post certain RBI strictures, hordes of cautioned depositors, including Tirupati Tirumala Devesthanam (TTD), had made huge withdrawals from the bank in the financial year 2018-19.

But the State government didn’t so any alacrity to withdraw its huge amount, despite a near rundown on the bank in 2018-19.

Why the SJTA has chosen Yes Bank?

Does the bank find a mentioning in RBI’s annual list of Domestic Systemically Important Banks (D-SIBs) at any point of time?

What is D-SIB? It needs mentioning here that globally there is a practice of designating some banks as systemically important, which from a regulatory perspective are such entities that cannot be allowed to fail.

Significantly, in India, RBI has identified only three banks namely State Bank of India, ICICI Bank Ltd. and HDFC Bank Ltd. as Domestic Systemically Important Banks or D-SIBs. For these banks, an additional equity requirement is applied. But Yes Bank is nowhere in the D-SIB list, though it has a large asset base of over Rs 2.2 lakh crore.

Yes Bank crisis a recent origin?

Not so. In 2015, reputed global investment banker UBS had then hinted about the looming collapse. UBS Investment Bank then had downgraded  Yes Bank from “buy” to “anti-consensus sell” category.

The bottom line: Despite a history of adverse reports against Yes Bank, how Odisha government/SJTA deposited such a huge amount in the bank, especially when RBI, UBS and Moody had downgraded it in 2018?

It is true that many big customers have also deposited huge money in Yes bank, but subtle difference is they didn’t deposit so in 2019 and ones who deposited earlier pulled out their money whiffing the primitive signs of collapse.


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