As Yes Bank unravels, a look at its previous audited financial statements for clues

Abstract

When IDBI Bank’s non-performing assets touched 29% with resultant erosion in capital, the government quietly organized a takeover by the Life Insurance Corporation of India. Shareholders, depositors/bond investors and holders of hybrid instruments (which rank between equity and bonds) did not lose money or face a write down. The financial markets shrugged away the deal. A public sector bank being rescued by a public sector life insurer, was a nonevent. In contrast, Yes Bank’s rescue orchestrated by India’s largest bank, State Bank of India, with blessings of the government, preceded by a moratorium on the bank on 5 March 2020, created shock and awe in the financial markets, threw depositors into a tizzy on account of partial restrictions on withdrawal, impacted payment systems relying on Yes Bank, resulted in market losses for equity shareholders and led to the ultimate nightmarish scenario of a 100% prospective loss for holders of hybrid instruments, the Additional Tier 1 bonds. The issues faced by Yes Bank have been in the public domain for a while, starting with divergence in asset classification compared to RBI’s norms, governance issues, whistleblower complaints, denial of the promoter/CEO’s extension etc. While its stock price cratered from a yearly high of Rs 285 to Rs 36 before the rescue, many depositors (though not all) and AT1 Bond holders were lulled into complacency as the problems were festering for a while without any overt panic.