Sunday, April 11, 2021

Bankruptcy of Yes Bank confirms poor health of Indian economy

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A Yes Bank branch, on March 6, in Bangalore in the south of India. MANJUNATH KIRAN / AFP

Digital banking is not necessarily the bank of the future. In India, the sinking of Yes Bank, which occurred on Friday March 6, even suggests that this model is only a pipe dream. This private establishment launched in 2004 by an American banker, Rana Kapoor, wanted to be a symbol of modernity, while surfing on the dematerialization of finance. He will be saved by a state bank, State Bank of India (SBI), the largest and most traditional in the country.

She promised to "Retain Yes Bank at the edge of the cliff", by acquiring for a minimum period of three years 49% of its capital, at the price of 10 rupees per share (12 cents), after which it will inject fresh money for 26.5 billion rupees (322 million euros).

A humiliation for Yes Bank, which had managed to rise to the fourth rank of private banks

A humiliation for Yes Bank, which had managed to rise to the fourth rank of private banks – behind ICICI, HDFC and Kotak Mahindra – and to become the number one in online transactions in the subcontinent, with 514 million transactions in January, out of a national total of 1.31 billion.

At the end of the day on Thursday March 5, the bank had been placed under the direct control of the central bank (Reserve Bank of India, RBI). On Friday, its share price fell 56% on the Bombay Stock Exchange to 16.2 rupees (20 cents). Three months ago, the title was worth four times more.

ATM withdrawals were capped at 50,000 rupees (608 euros) per person

Yes Bank customers are at their expense. Many waiting in line at the 1,200 branches on the eve of the weekend to wait to find out about their fate, hoping to withdraw their assets as soon as possible. It was a waste of time: ATM withdrawals were capped at 50,000 rupees (608 euros) per person and all card payments and withdrawals were blocked. These restrictions will last a minimum of one month.

The difficulties of Yes Bank come mainly, according to the RBI, from its "Inability to cover potential losses due to bad debts"in other words, loans to debtors who do not repay them, which are currently causing the entire Indian financial sector to be shaken by a serious crisis. As of September 30, 2019, these loans represented an outstanding amount of € 2 billion for Yes Bank.

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