Yes Bank Failure: A Collective Failure of Regulators

The arrest of Rana Kapoor by Enforcement Directorate (ED) after hours of questioning and the problems arising at Yes Bank are not something that are related to the problems at Yes Bank only. It is part of a bigger story and is result of collective regulatory failure. News are not talking that ED is expected to question Rana Kapoor’s wife too in the same case. These incidents at Yes Bank are not just related to Yes Bank only and stray events but also have direct links to scams and ongoing high profile investigation in DHFL case. In case of DHFL many financial institutions and individuals (celebrities and professionals) are said to be involved to varying degrees.

Yes Bank was facing problems like deteriorating assets quality, inadequate capital and losses in books of account for long. But surprisingly RBI did neither take any action against this private sector bank or intervene in the issue in time. The current problem was in public discourse for long. Even market was reacting to the news. Stock prices fail by around 95 percent from Rs 275 to Rs 16.5 in less than one year. But RBI took charges only after things went awry and out of control.

In most of such failures along with wilful defaults, corporate governance failure is found to be the prime cause. But the failure of Yes Bank is not just failure of corporate governance at Yes Bank only but it is clearly a collective regulatory failure of Ministry of Corporate Affairs, Ministry of Finance and RBI also. None responded when they could have.

It is now a well known fact that the scam at DHFL are far bigger than it was assumed to be earlier. The investigation in the case of DHFL is found to be similar in nature but smaller in size to that of the scams at ILFS to huge extent with in-numerous institutions and individuals involving.

However the fall of Yes Bank at this juncture of time is a serious issue for the whole economy when the Indian economy is already under tremendous pressure because of slowdown followed by many high profile banking and financial scams such as ILFS and PNB. If the regulators fail to respond appropriately to Yes Bank’s problems, it will have grave consequences for the struggling Indian economy. Also it is important to ensure that in the process of saving Yes Bank, regulators don’t end up hurting SBI as SBI is already stressed and increased risk would have negative impact on overall performance of the bank.

No comments:

Post a Comment