Yes Bank: A collective win

How in saving Yes Bank, India’s financial system reaffirmed its ability to act with purpose

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The recent entry ofa Japanese financial giant into India’s banking sector through a significant investment in Yes Bank has been widely welcomed. There are signs that more such overseas investments may follow. It is being rightly celebrated as a sign of strength and resilience of the Indian banking system.

What had probably faded away from public memory, as it typically does, is the spectacular collapse and the painful rescue of the bank, which played out about five years ago. This rescue was unique in how the regulator, government, and public and private banks worked in perfect harmony. It kept a bank alive, protected its depositors, and did not defray public funds. It also culminated in the creation of conditions that allowed significant overseas equity to enter later. Some stories deserve to be told again!

It was March 2020 and Covid-19 was in full flow. Yes Bank, then the fourth-largest private bank, was ina grave situation. Its capital-raising efforts had repeatedly failed, and the bank was drowning under a mountain of nonperforming assets, compelling the regulator, the Reserve Bank of India (RBI), to supersede the board and place the bank under a moratorium.

Depositors faced withdrawal limits, market confidence was fragile, and the financial system, already coping with aftershocks from a couple of other events, risked losing public trust. The pandemic made stabilising the banking system even more complex.

An unusual path to stability

The RBI's Yes Bank Reconstruction Scheme was unlike any previous resolution. Instead of merging the troubled bank into a larger entity, which would have meant the end of its brand and identity, a decision was taken to preserve it. This reassured depositors that their bank was likely to survive and continue serving them.