Yes Bank, No Governance

Abstract

The March 2020 issue of Artha would have been incomplete without discussions on two important issues- one that has almost locked down the entire world (COVID-19) and the other that has shaken the confidence of people on Indian banks (near collapse of Yes Bank). The present issue looks at economic implications of COVID-19 and there are two pieces on Yes Bank. Was there any early warning signal for Yes Bank? Or was it like COVID-19- without anyone knowing about this pandemic disease even three months ago? For example, Yes Bank had raised Rs.3,042 crore in September 2018 through issue of listed non-convertible unsecured bonds. The issue had secured a credit rating of CARE AAA and AA+ (India Ratings), signifying highest level of safety for the investors. One year later, in December 2019, Moody’s downgraded Yes Bank’s ratings to ‘b2’ (high credit risk) and further to ‘ca’(very near default) in February 2020. Thus, the actions of the rating agencies suggest that Yes Bank did something horribly wrong in the past one and half years. This conclusion is not correct. Way back in 2015, an article quoted in The Quint1 showed that almost a fifth of Yes Bank’s loans were given to stressed companies and the Yes Bank’s exposure to these companies tripled in three years, between 2011-12 and 2014-15. It seems the regulators (RBI), the Board of the Yes Bank, and even the Finance Ministry chose to ignore the warning of the two young analysts of the Swiss investment Bank, UBS2 .