There's
one question that keeps coming up: Did anything positive happen in the year
2020?
Well,
corona, economy, and unrest aside... Some positives can be drawn out of the year
that was. In today's blog, we talk about a bank, whose Mar 2021 deposit target
is 2 trillion Rupees! This bank has performed so well that, it has been upgraded
from mid-cap to large-cap. Credit to its current market capital: 333 billion
Rs.
Get
it, yet?
Okay,
one last hint... Its share price hit a 20% lower circuit a few months ago. But now,
this bank is making regular gains on the upper circuit. If you can't figure out,
you're not reading enough, are you? This won't do you good, trust me.
The most common question in 2020: Is your money safe in the bank?
Answer:
If you & government be a little extra careful, Then the bank is really the
safest place really, And despite the economic crisis! The story of Yes Bank has
been like a roller coaster movie. Because, in the financial sector, such bounce
back is unprecedented and rare
One
can only wonder how this managed to happen in 2020?
Believe
it or not, for Yes Bank customers, 2020 was rather brilliant. How so? Let's
rewind... In 2020 beginning, a financial tsunami hit the Indian shore (along
with corona of course) Our economy was in shambles. And Yes Bank was in the
middle of it. "India's 5th largest private bank" In spite of all
rescue attempts, the bank's NPA grew larger by the day. Bringing it on the
verge of death. But, the collapse of this bank would be "bad news" Which,
Nirmala Sitharaman and RBI director Shashikanth Das knew pretty well. "Hence
an emergency brake".
On
5 Mar, Yes Bank was placed under moratorium. Withdrawal limit: 50k a month. The
Board of Yes Bank, dissolved. Then, former SBI deputy managing director &
CFO, Prashant Kumar was requested to save the dying bank. A rescue plan was
schemed the very next day by RBI. According to which: Axis, Kotak, ICICI, HDFC
joined SBI to invest in the YES BANK. Thereby infusing a working capital to
ensure revival. Lots of questions were asked when all this happened in March,
2020. Nine months later we learn the following:
First,
intervention works but even so, precaution is better than cure. Second, a
troubled bank can still be saved, and successfully so, This shows that large
banks are safer. Remember, Yes Bank-like rescue plan not possible for PMC, said
RBI. So, theoretically, bigger banks tend to be safer. Third, a very important
point: Management can make or break a project...
On 5th
Mar 2020, evening, Prashant Kumar gets a call, He had served as SBI's CFO up
until then.
"Save
the fallen bank," the caller offered. Joining: "Tomorrow, 8 AM!"
He accepted the offer. In the next 9 months, he gave it his all and rescued the
sinking ship that was Yes Bank.
How
did he manage that?
First
step: Regain depositors' confidence. He himself used to call 10-15 depositors
every day!
Second:
Raise additional capital, 2 billion USD from 8 investors. This funding was
necessary for the bank's stabilization.
And
third step: Intensive cost-cutting. As many as 50 branches were shut, operational
expenses reduced by 20%. As things changed for the better, the next big challenge
was, to recover loans from defaulters. Although this list has names like Anil Ambani,
Subhash Chandra & DHFL. The bank is adamant to reclaim their money. Furthermore,
they are doing good, decent business. In fact, new bank accounts are opening as
we speak. In other words, consumer confidence is increasing.
"Now
we are able to open almost 60k accounts every month and before, like, covid and
before the bank was put under the moratorium, our peak rate was something around
55k." 9 months later, Yes Bank is not only a success story But also a
learning lesson for other unstable banks. As of today, there is no withdrawal
limit. Plus the bank has repaid RBI its 50k crore dues! The Yes Bank formula
was replicated on Laxmi Vilas Bank. On Nov 17, a 30-day moratorium was
implemented it. Withdrawal limit set to 25k Rs. Then, Laxmi Vilas was merged
with DBS India, according to "Yes Bank Blueprint". So now, depositors
can access all the services, as per DBS, WITH no changes in interest rate. But
it's not like everyone's happy. Yes, Bank AT1 bonds worth 8,400 crores were
reduced to zero to carry out its revival. This has disturbed the bond-buyers,
who feel cheated, hence, the case is now in court.
Similarly,
trading in equity shares of LVB was also suspended. As a result, shareholders
are quite upset. Additionally, Yes Bank has given loans in the engineering and
steel sectors. If the economy remains in bad shape, NPAs in these sectors will
increase, thus reducing Yes Bank's recovery. Despite those challenges, Yes Bank
Q2 profit was up by Rs.129 cr, amidst pandemic! This is almost 3 times the jump in
profit. Yes, Bank has shown interest in small-scale industries and aims to
disburse Rs.10k crore in the Dec quarter. Even its ratings are now on the rise
triple-B according to CARE, And from under-credit to stable category in
November.
So,
finally, what can be learned from the Yes Bank story?
Bank
is not God, you must keep it in check. Especially on its NPAs. And remember not
to put all your eggs in one basket. Better to divide among two or three banks
so that there's always an alternative to rely upon during an emergency. Lastly,
no bank is 100% safe, not even govt banks. And especially not smaller, co-op
banks. They sink easily. Plus, the govt just cannot let the bigger bank sink
because that'd hurt the entire financial system. A bank deposit is not equal to
savings, not for the long term at least. For that purpose, mutual fund and FDs are
recommended. Diversify your investments. Or, pick a reliable investment
manager. Yes, Bank sure has recovered, against all the odds. Call it 2020
miracle! That does not guarantee safety in the long run though.
So,
you must become smarter because it is your money after all!