YES Bank continues to breach RBI’s critical liquidity and statutory requirements

With the RBI stepping in last week and unexpectedly placing restrictions on withdrawals of deposits, it had become obvious that YES Bank’s book was in for a massive clean-up.

The December quarter results released late on Saturday, after much delay, reveals that while the bad loans were grossly understated and provisioning hugely inadequate, the bank had also (after factoring in the assessed write-offs and provisions) breached most of the RBI’s critical statutory and liquidity thresholds. As it stands, the bank continues to breach some of these crucial norms, according to the notes provided along with the December quarter results.

Vital regulatory norms

Liquidity coverage ratio (LCR) and statutory liquidity ratio (SLR) are vital regulatory norms. Banks in India maintain a portion of their deposits (NDTL) as SLR in the form of government securities that are highly liquid and can be easily sold to raise money. In fact, this is unique to India which follows a more conservative reserve requirement than the Basel standards.

From January 2015, Indian banks were also required to meet the guidelines on the minimum LCR set out under Basel III. The main objective of the LCR is to ensure that banks maintain sufficient liquid assets to meet obligations in a 30-day stress scenario. The LCR requires that the stock of liquid assets should equal to 100 per cent (from January 2019) of the total net cash outflows over 30 days.

In the December quarter, LCR for YES Bank had slipped to 74.6 per cent owing to substantial outflows in the form of withdrawals of deposits (about Rs 44,000 crore) and repayment of foreign currency debt (Rs 8500 crore). A look at the Basel III disclosure on LCR, put out separately on the bank’s website, suggest that the bank’s high quality liquid assets (average in the December quarter) had shrunk to Rs 31,085 crore from Rs 53,659 crore in the September quarter. This had led to the notable fall in LCR to 74 per cent levels in the December quarter.

According to the additional information in the December quarter results, subsequent withdrawal of deposits post December has led to LCR falling to 20.9 per cent as of March 5. The low liquidity cover is a cause of worry as the moratorium will be lifted on March 18, which could see more outflows of deposits.

The result release also suggests that the bank had breached the SLR requirement during the December quarter and continues to breach it (current requirement is 18.25 per cent of deposits). While the details of the quantum of breach is unavailable, it could impair the banks’ ability to raise money quickly.

COMMENT NOW