The government had recently put private sector lender Yes Bank under moratorium till April 3 and capped deposit withdrawal at ₹50,000 after severe deterioration of the bank’s financial position.
However, Yes Bank’s books show that warning bells had been ringing for more than a year. The bank went on a loan spree even as bad loans mounted. Meanwhile, depositers withdrew large amounts, resulting in the bank’s profitability nosediving in the last two fiscals.
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.
Percentage change of total advances
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.
Gross NPA to gross advances ratio
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.
Provision coverage ratio
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.
A credit-deposit ratio of 106% means a bank loaned ₹106 for every ₹100 it received.
The loan spree & high NPA meant poor profitability, gauged by Yes Bank’s sinking Return on Assets (RoA) (RoA = net income/ total assets). Graph shows year-on-year change in RoA.
For instance, Yes Bank's RoA in FY19 was 0.52, in FY18 it was 1.78. Thus the y-o-y change of -1.26 in FY19 is plotted in the graph.
Return on Assets
Yes Bank’s y-o-y change of RoA sinked to -1.26 in FY19, the highest slump among comparable banks.
Investors sensed trouble
Though the bank’s troubles came as a shock to many, investors sensed it early. The bank’s stock price fell steadily in the past year.
Source: RBI, Annual reports of banks, BSE Sensex
Note: The print version of the graphic incorrectly noted that the profitability graph plotted Return of Assets, while it had actually plotted the y-o-y change of the same.