Yes Bank Crisis - Are other banks safe ? समझिए impact after March 31st ?

What happened at Yes bank and how serious was its impact on the stock market?

To know the answer, you don't need to look at the share prices of Yes Bank or the bloodbath in the stock market, not even the news articles. All you need to see is this tweet by Payal Rohtagi, a firm believer in the policies of the current government. Till now it had been Hindus who were in danger, now that Payal's father's funds at stuck in Yes Bank, the economy became an important issue for her.

Payal Rohtagi
Payal Rohtagi

Anyway, it is our country's specialty that until and unless it doesn't affect us, we don't care about right or wrong. So let's talk about the ongoing bank crisis in the country.

What happened with Yes Bank?

What would be its impact on us?

How would it affects the entire banking system and the country's economy?

Why did it happen?

Is it only about Yes Bank or is it going to get worse?

And how will this magnify after March 31st?

"The UN has finally taken notice of our poor economic situation. Finally, what can we do to protect our savings and funds in this crisis?"

What happened at the bank?

We all know now that no account holder of Yes Bank can withdraw cash more than Rs.50,000 even if you have multiple accounts there. If there is a medical emergency or any other unforeseen circumstances then you can withdraw up to Rs. 5 lakhs, but it is to be seen if this will be sanctioned easily. This bank has been on the verge of collapsing for a long time now, so many of the account holders had already started withdrawing their money. Those who were ignorant enough are now waiting in lines outside Yes Bank's ATM. Many people had thought that the bank will be saved at the very last moment but nothing of that sort happened. Retail investors are finding themselves standing in ATM lines yet again. The government has said that SBI and LIC, together will acquire half of YES Bank at Rs 2 per share. This transaction is being forced upon SBI. The government wants SBI to take-over YES Bank, and that has caused a downfall in SBI shares as well.

What would be its impact on us?

We have all seen what happened to PMC Bank but if we compare the two Banks, we'll find out if the situation is worse or not. PMC Bank had about 137 branches while Yes Bank has more than 1,000 branches and 18,000+ ATM's. PMC Bank had deposits of about Rs 11, 617 crores while Yes Bank had deposits worth Rs 2 lakh crores. 

PMC Bank Vs Yes Bank
PMC Bank Vs Yes Bank

There were about 800 employees in PMC Bank while Yes Bank has more than 18,000 employees. PMC Bank was among the top five co-operative banks in India while Yes Bank was among the top private Banks of the country. So basically, the scale and size of YES Bank are way more than PMC so a number of people who will be affected by this are many more.

Who are these people waiting in lines to withdraw their money from the bank?

These can not be those who follow the news as the poor condition of the bank has been in news for so many days now. They are those who get their news updates from Whats-App University or 9 pm TV news or they were those who had blind trust in the government that they couldn't see the crisis in front of them. They have come to know that the government only takes care of themselves and not the people.

Why did it happen and why are other banks heading the same way?

We have already told you the reason behind this, NPA- Non-performing Assets which are slowly increasing in our economy. This has been continuously eating up our financial system. We have told you this in 2018 that the non-performing assets are continuously increasing, banks are not making any profit and thus they are charging us with extra-bank charges. Listen to it yourself...Eight big banks have already declared a loss of Rs 50,000 crores Gross non-performing assets that is the money that is never going to come back to the banks is about Rs 9 lakh crore.

All banks are going through a crisis with high losses, NPAs, and no domestic growth. What's important is how does this affect you and me. The truth is that we would have to pay for these losses. Our economy tops the world in terms of NPAs. 10 years ago, the NPA of our country was at half a billion rupee which means it has increased by 20 times. India is the only country in the world whose non-performing loan ratio is at its worse right now. Basically, all the big businessman lending money from the bank is not returning it while we can not lend a penny without interest. You didn't listen to us even then. What you didn't understand was that you were being distracted from the core issues throughout.

What if the situation is similar at other banks or has there been any specific issue with Yes Bank?

Fortunately, not all banks are the same, some take care of your savings and do not involve in any conspiracy. 'Yes Bank' though has committed all the possible mistakes and today, its customers have to face the consequences. The co-founder of this bank has started this huge company and then sold the entire stake himself. Soon the investors also started leaving and only depositors were left who are now standing in front of ATM lines. So this decline was not random or sudden but happened systematically from top to below. CEO Ravneet Gill tried a lot to arrange foreign funding to revive the bank. So that the bank can be recapitalized and many actually believed that this will be so. His plan might have worked in India 10 years ago but not in 2020. Because of 10 years ago, India was developing, youth was supposed to be leading this development. 

The investors are skeptical of spending their money in Indian market because of the developing authoritarian regime, riots and absurd policy changes every day. And this crisis could have been prevented if Rana Kapoor had been more careful and responsible. Rana Kapoor has been a flamboyant and dynamic banker; he worked in foreign banks before starting his own. Rana Kapoor used to deal with companies whose loan applications were rejected by other banks. 'Yes Bank' would entertain all such rejected deals which is why all the companies which got shut in the last couple of years owed money to the bank.
And this directly affected the bank and consequently, the burden came upon us. 

Rana Kapoor
Rana Kapoor

Now that 'Yes Bank' is in danger, the question is should those who didn't have their accounts in Yes Bank worry?  

Are more banks going to end this way?

It is very important for us to understand why the situation got so bad and how it can get worse after March 31st.Earlier, banks use to hide their non-performing assets by calling them stressed assets and were claiming that these stressed assets would soon start making money. With the new regulations today, you can't hide these facts anymore. So these NPAs worth Rs. 10 lakh crore are going to cause more loss and expected to shoot up. Let's take the example of 'Mudra' scheme that started about 4 years ago and has offered loans in very less time for common-man to sponsor their own businesses. The idea was pretty good, but its execution was extremely poor.

The NPA has already shot up to Rs 17,000 crore; Rs 2 lakh crore are already being written off and the stressed assets of 'Mudra' scheme are being piled up and all this is going to affect the economy badly. State Electricity Board didn't pay. Telecom industries have to pay a huge amount. Agricultural loans, which are already among non-performing assets, are posing a big challenge. This adds up to some 3-4 lakh crore more on the already existing debt. So these NPAs are soon going to increase and you need to keep checking if your bank is exposed to any such crisis or at risk in any way.

Does the international committee have nothing else to do but to criticize Indian economy?
First, the IMF expressed its concerns over the reliability of our economy data, GDP data, etc. And now UN is added to the list."United Nations report on Friday has also drawn the attention of rising corporate debt in India, which exceeds 40% of the GDP, that by the way, we were aiming to reach 5 Trillion, is under debt. 

1. How much of this 40% debt comes under bad debt?

2. How much is stressed?

3. How much is non-performing?

"Nobody knows these answers. The international community is now questioning us and our banking systems as we were hiding all this."

What can we do save our money?

Investors and shareholders will still get away with the mess. We will be left to bear the crisis, suffer in long lines and find our funds stuck in the banks. When PMC bank(which was much smaller than this) collapsed, some 10 deaths were reported. Then think of what is going on with the people who have invested in this bank and deposited their money there. The first thing that you need to do is to abandon Whats-App and TV news. So if you have been following Whats-App and 9 pm news to learn about the country's economy then you deserved it. So at least, open your eyes to reality and accept that our economy is in bad shape.

Understand what 4.7% GDP growth really means to our country. Understand the crisis behind the lowest GDP growth in 7 quarters. Then you'll be able to figure out where your money is safe and where it is not. Also, those who were thinking that our economy has bottomed out and will now grow up should realize that it might not be so due to the impact of Coronavirus. Not just India, but this virus will impact the global economy. So try to understand how our internal factors have combined with external factors such as Corona and caused deeper issues. Third, what you need to do is to keep a close track of your bank.

Keep checking if your banks have any stressed assets, what the press is saying about your bank, its records, etc. Those who realized that Yes Bank was in a bad shape withdrew their money already. It wasn't as absurd as it was in the case of PMC bank so those who have been tracking are safe. If you have all your money deposited in one bank then do spread it out to at least 3-4 banks. The better option is to go for long-term investments. If you don't need the money now, then don't deposit it in banks as it is anyway not safe there. You can invest in mutual funds as the stock market is anyway down these days. You can buy digital gold. We are usually very lazy in this aspect; we constantly avoid mutual funds and keep our money in the bank.

So this 3-4% profit that your money will be making in banks is not enough since inflation keeps on rising. Secondly, it is only stuck in banks and most probably would be lost forever. Invest in long-term projects and not on short-term ones because that is not going to provide any gain in the current economic situation. Go for long-term investments such as gold and mutual funds.

And just hope that in the long term, the Coronavirus epidemic gets defeated, policy paralysis gets fixed, toxic debt gets eradicated, then only our economy can grow. The long term output for our economy is still being projected to be positive. So I just hope that these tips can help you and you somewhat understood the Yes Bank crisis. I am also trying to understand how people couldn't see it coming with so much evidence in front of them. So my only point is that at least be attentive and active now.

Source Link: Akash Banerjee

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