The government’s hurriedly organised Reconstruction Scheme for Yes Bank alludes to “the rapidly deteriorating financial position” of the country’s fifth-largest bank. But in October 2016, when Yes Bank’s second quarter results came out, the deterioration in the asset quality due to the bank’s corporate-heavy loan portfolio was more than apparent. Yes Bank’s gross non-performing assets (NPAs) surged 87 per cent from a year ago, with bulk of the jump being in the March and June quarters, following the RBI’s asset quality review conducted last year. Its net NPAs more than doubled. While the company then pointed to growth in lending coming from the less risky retail book, corporates continued to have the major share and the bank’s high 9 per cent exposure to the power sector were pointed as big impediments. Apart from corporate governance lapses, heavy exposure to various lower rated corporates led to unravelling at Yes Bank. In the past three years, the RBI assessed divergence in reporting of its NPAs, and did not renew the term of then MD and CEO Rana Kapoor to change leadership, and appointed its nominee director of the bank’s board. Speaking to reporters on Friday, Finance Minister Nirmala Sitharaman said the Reserve Bank of India stepped up its monitoring of the bank since 2017, when governance lapses starting coming to the surface. “It’s not that the Yes Bank matter has come up just yesterday or today . Since 2017 the Reserve Bank of India has been continuously, closely monitoring,” she said. Government together with the RBI has been continuously monitoring this matter. In 2017, RBI noticed that governance issues were of serious concern and there was weak compliance along with wrong asset classification and risky credit decisions. “In September 2018, they (RBI) clearly said that the leadership has to change, they did not allow further continuation of the Chief Executive’s term (and a new CEO was appointed) . these steps the RBI has been taking to keep the bank healthy,” she said. Existing promoters of the bank were compelled to sell their shares as part of the clean up exercise. In May 2019, the RBI appointed former deputy governor R Gandhi as an additional director on the board of Yes Bank for two years, from 14 May 2019 to 13 May 2021, under sub-section (1) of Section 36 AB of the Banking Regulation Act, 1949. The RBI can, according to this section, appoint additional directors “if the Reserve Bank is of in the interests of the banking company or its depositors it is necessary so to do, it may, from time to time by order in writing, appoint, with effect from such date as may be specified in the order, one or more persons to hold office as additional directors of the banking company.” Sitharaman said the new management at Yes Bank then made genuine attempts to raise capital but no money came, forcing the government and the RBI to put in place a reconstruction plan to safeguard interest of depositors, other stakeholders and the entire financial system. The government has also asked the RBI to assess what has caused the difficulties at the Yes Bank and assess the costs imposed on the financial system. The finance minister also asked the RBI to assess the adequacy of the extent of regulatory and supervisory norms.
