Yes Bank is a peculiar case study expanding across spheres of
corporate governance; financial sector regulation; securities market
regulation; investor behavior; crisis management; audit failure; risk
management; decision making; and much more.
The consequences are (i) investors' wealth has eroded materially
and (ii) the interest of the entire financial system, including depositors, has
been imperiled.
By dithering on taking a prompt and appropriate action, the
regulators are perhaps indicating that no lessons have been learned from the
debacle of IL&FS and PMC. The worst, the bank continues to be a part of the
benchmark Nifty50 and NiftyBank, forcing the passive investors to buy this poor
quality stock. Besides, the equity shares of the bank continue to trade in the
derivative segment encouraging speculative trades, especially by small
investors in search of windfalls.
Apparently, the bank has been violating the prudential lending
norms with impunity. Both the RBI (financial sector regulator) and the auditors
have failed in detecting the divergences between the actual amount of
non-performing loans and the reported amount.
SEBI has dithered in taking appropriate action against the
company despite frequent under reporting of nonperforming assets. A popular
perception is that the bank might have booked commission/fee on services, which
is still not accrued to the bank, thus overstating the income of earlier years.
National Stocks Exchange (NSE) may have erred by not proactively
excluding the stock from the benchmark indices (Nify50 and NiftyBank) and
placing appropriate trading restrictions, e.g., placing the stock in Trade for
Trade category after first rating downgrade. Similar mistakes have been made in
past with Jet Airways, JP Associates, DHFL, ADAG companies. As an SRO, it is
incumbent upon NSE to at least make all the brokers mandatorily inform the
buyers of the stocks of such troubled companies about the risk involves every
time a BUY order is placed. So that at least the gullible buyers are aware of
the magnitude of the risk they are taking.
The traders and investors, especially the non institutional
household investors, have been repeatedly lured by the prospects of hitting
jackpot in a beaten down stock. Not learning even from their latest experiences
in JP Group, DHFL, ADAG, Jet Airways etc., they have chased Yes Bank stock from
the levels of Rs85-90 in past 6months, believing it to be a blue chip company
despite frequent warning signs and rating downgrades.
The financial markets, especially some asset management
companies and NBFCs, have still not fully recovered from the setback of
IL&FS, Jet Airways and Zee Entertainment. Regardless, they failed in
controlling their exposure to Yes Bank bonds and commercial papers, and face
the prospects of a default. The raises stink over the risk management practices
followed by these institutions.
The government has an excellent example of crisis management in
takeover of Satyam Computers. A similar decision was taken to merge the
beleaguered Global Trust Bank with oriental Bank of Commerce. However, similar
alacrity has not been shown in managing the crisis of JP group, ADAG, Jet
Airways and now Yes Bank. The takeover of Unitech has happened some 5-6years
too late. A timely action could probably have saved many jobs, investors'
wealth and lenders funds besides controlling the collateral damage to the
financial markets.
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