Causes of Yes Bank crisis:
- Loan spree
- In the last five years, Yes Bank went on a loaning spree. Its total advances rose by 334% between FY14 and FY19, the highest rise among comparable banks in the period.
- Bad loans multiply
- Many borrowers started defaulting. The bank’s Gross NPA% (loans overdue for >90 days) zoomed to 7.39% as of Sept. ‘19, the highest among comparable banks.
- Low provisions
- While bad loans piled up, Yes Bank did not make enough provisions in its profits. Its Provision Coverage Ratio in FY19 was 43.1%, the lowest among comparable banks. RBI says a PCR of >70% is desirable.
- Confidence drop
Amidst the loan mess, customers withdrew large amounts, resulting in the credit-deposit ratio of Yes Bank crossing 100% (it lent more than what it received) in FY18, 19.
- Poor profitability
The loan spree & high NPA meant poor profitability, gauged by Yes Bank’s sinking Return on Assets (RoA) (RoA = net income/ total assets).
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