It was raised to 5x of that in February, but doesn't help as that requires the bank to be declared as failed. The regulator (RBI) has refused to do that in multiple instances, most notably in the case of PMC Bank a few months ago.
>Oct. 31 - Yes Bank gets binding investment offer of $1.2 billion from global investor, sends stock 39% higher.
>Nov. 1 - Yes Bank reports bigger-than-expected loss for the second quarter, as bad loan ratio deteriorates to 7.39% and provisions swell to 13.36 billion rupees
This seems... odd to me. Almost like they got the money and said "thanks for that... erm, we forgot to mention this other thing here..."
On another note, what's with Techcrunch messing with the back button? It takes 4 clicks to get back out!
Typically an investor of that magnitude would have pretty free access to such financial information. A failure to disclose something like this on the bank’s part would constitute fraud, and a failure by the investor to discover this given free access would just be naive and negligent (i.e. they deserve the consequences). Maybe in India the rules are different, I’m speaking from my local experience in the US.
Regulation would likely dictate thorough investigation but I know of one example where it didn't happen: RBS purchase of ABN Amro circa 2008.
I was at RBS at the time and I remember the fallout later when they realised that paying £10Bn in cash for ABN was a total disaster.
I believe the term that was used was "due-diligence lite" to refer to the amount of investigation performed. Which was especially stupid given that, I believe, Barclays had already walked away from the deal.
Normally I'd sympathize but there were signs of this being inevitable for a very long time now.
My father and I are small business owners in two entirely different fields. Every now and then we talk about what we've been hearing - scuttlebutt etc. Both of us, in different cities multiple states away, heard that this was going to happen at least 7 months ago.
There has been a bunch of media coverage about the bank's financial woes as well.
I'd have moved off their infrastructure a long time ago. I know in some cases it's easier said than done, but I feel like you really had to know that this was coming, especially if you're a big corporation. There's really no excuse for being caught like this when even a small time guy like me could have told you this day would come.
Edit: For clarity - while there are ways to get infusions of funds to avoid this scenario, I was sure it would be inevitable because there is a well-founded reputation of corruption, fraud and a general culture of shady practices surrounding this bank. High profile folks at the bank were charged with some of these crimes in 2018 if I remember correctly.
Wouldn't moving money effectively make the crisis happen quickly and inevitably many, or maybe most people would simply be unable to move faster than others?
In this case the bank was offering technology solutions like point-of-sale machines and QR Code payments and Payment Gateways and accounts for the Unified Payments Interface system, all of which stopped working because the bank is now unable to carry out its normal operations.
A relative, years ago, made me aware of a small deposit they’d made in my name there. After being rotated between half a dozen customer service reps, communicating over e-mail and WhatsApp and SMS, contradicting each other at every turn, I gave up trying to set up an account to manage and/or withdraw the funds.
Abysmal service culture. Not surprising to see that had knock-on effects.
Most online fintech services allow this - you can send money via paypal to any email address, send a venmo to any phone number, etc regardless if an account exists or not. The services will let you take back the payment if no one claims it. (On ios open a new blank text, open the apps section, click venmo)
That's not "making a deposit" means, but I get your point. If that's what the OP meant, then I take issue with their wording. "Making a deposit" and "transferring money" are two different types of financial transactions.
This meltdown also exposed a bunch of embarrassingly poor engineering / design practices with several fintech startups.
PhonePe, a payment app valued at $7 billion and a subsidiary of Walmart owned Flipkart has been down since this morning since Yes Bank was the only bank they had partnered with since 2016.
A $7 billion dollar company running without failover / redundancy is just crazy.
Google Pay, their competitor on the other hand has atleast 2 banks (HDFC and Axis) it has partnered with.
What's worse is Yes Bank/Phone pe handled around 40% of daily UPI transactions - so millions of folks have been affected by this screw up.
No there's a separate system for NEFT. UPI is a central bank mandated payment gateway standard. It runs on top of an instant settlement system called IMPS. Implementations tend to be very low cost but there's a cap on transaction size.
It's very likely now that Visa and Master Card network will never penetrate in India beyond the wealthy class that travels abroad. This was kind of a pre-emptive strike to keep rent seeking companies at Bay.
Millions of users are affected by this meltdown since PhonePe, an Indian payments app has partnered only with Yes Bank while it's competitors partnered with multiple banks.
>while it's competitors partnered with multiple banks.
Yes Bank launched PhonePe on Day 0 of UPI. The whole multiple bank thing was made possible much later via NPCI because of Google Pay.
I wouldn't blame them for it. And they managed to get back up in 24 hours, which is pretty decent. (The Bank itself is still down, but payments via PhonePe are functional as long as you have a non-yesbank account)
I have mentioned this issue to multiple fintech entrepreneurs in India that they can launch a private fdic like insurance. They can charge different premiums for each bank effectively producing health ratings for those banks.
Private depository insurance is possible, but what makes the FDIC insurance feel secure is that it's a promise from the government to pay, and the government has 'unlimited' dollars to pay with. Additionally FDIC membership is basically compulsory for US banks, and the FDIC has the authority to shut down a bank in case it's unsound.
I don't see how a private insurer would inspire the same confidence. The amount of reserves would have to be huge, and verified. Somehow, the insurer would need to be able to quickly wrest control over a troubled bank. And that's assuming the bank doesn't stop paying the insurance and 'forget' to update its website.
As a person currently working in fin tech industry in India, I had the opportunity to closely watch the situation unfold at the ground level. There is a lot of disarray as Yes Bank powers a lot of innovative payment systems across India. Feel free to ask me questions if you have been affected by Yes Bank outage or have any general questions related to payments industry impact.
Yes Bank was handling more than 40% transactions in India. One would expect the bank to be very profitable. Why does the bank have financial woes that caused the central bank to take over the bank?
A lot of transactions that happen in India (especially UPI transactions) have very small value and are not able to make a bank profitable by itself. Lending is a major driver of success for banks in India currently.
As it happens Yes Bank they have given out a lot of bad loans which did not get repaid. That is the primary reason Yes bank is not doing great. Apart from this there are allegations of corruption against the top level executives of the bank. But mainly its the concern about the bank's balance sheet that has prompted RBI to act.
40% of UPI transactions which are typically much lower value than say B2B transactions via RTGS etc. Also the per transaction fee is nil or negligible and not comparable to the percentage fee charged for card payments.
They are under because of a lot of shady practices like knowingly giving out bad loans, corruption and self dealing that enriched it's founder. He had been ordered by the regulator to step down 2 years ago, but that didn't prove to be enough to save the bank.
For example the founder and ex CEO was involved in a scheme where Yes Bank disbursed bad loans to a prominent business (Indiabulls) family, in exchange for which the family's business lent huge sums to Yes Bank's CEO and his children.
Beyond this Yes Bank loaned out several billions of dollars to companies that other banks were unwilling to lend. Most of that money never came back.
The Bank of England used to let employees have mortgages with the bank. Random people couldn't get a mortgage from the Old Lady but their employees could. It's a huge National Bank, giving some middle manager a $0.5M mortgage on a nice house for his family at a slightly nicer rate than commercially available is a cheap perk and no real threat to stability of a trillion dollar GDP economy.
But while it's different in quantity and character it sends the wrong message. The newly created First Bank of Elbonia sees this and figures it's fine to lend $500M (a tenth of tiny Elbonia's GDP) to their chairman who is coincidentally also the brother-in-law of their newly elected Grand President. The money is never paid back, Elbonia sinks into a swamp of corruption. Oops.
So the Bank of England stopped offering such perks. It's a shame, but it's like when you're looking after young kids. Maybe you'd just run across this road, but with kids watching we should walk to the proper crossing and do it by the book. No self-dealing.
The BoE giving better rate on mortgage to employees as perks is perfectly fine because the mortgage has collateral priced at a market rate with market interest. Those so call perks are basically Bank not earning interest on its employees.
Lending $500M without collateral seems like a completely different thing.
40% of UPI transactions, not all transactions. There are other payment instruments, and a lot of transactions are just bank transfers (with even lower margins).
Even UPI had pretty low margins, and wasn't really making them much money to make up for the HUGE losses they had because of the bad loans.
Sure, one example of the offerings of Yes Bank was inter bank transfers api which allowed you to settle money instantly between accounts at great scale. Beyond that there was virtual bank accounts, virtual UPI IDs, e mandates etc. If you are interested in learning about such solutions please feel free to visit cashfree.com
Hey, I checked your website and it seems you also support international payments. Do you offer FIRCs on international payments? These are required legally for service exporters (like a SaaS service), and are very tough to get. Currently payoneer seems to be the only provider which supports issuing an actual e-FIRC without any hassles. But they are not a payment gateway. Stripe issues something like an advice but not an actual e-FIRC. Paypal also only gives an advice and not an actual e-FIRC.
there's a bad loans crisis in multiple banks, which have been placed under the scanner of the Central Bank. A couple banks collapsed, bunch of them got taken over, others were merged.
54 comments
[ 1.9 ms ] story [ 129 ms ] threadThis seems... odd to me. Almost like they got the money and said "thanks for that... erm, we forgot to mention this other thing here..."
On another note, what's with Techcrunch messing with the back button? It takes 4 clicks to get back out!
I was at RBS at the time and I remember the fallout later when they realised that paying £10Bn in cash for ABN was a total disaster.
I believe the term that was used was "due-diligence lite" to refer to the amount of investigation performed. Which was especially stupid given that, I believe, Barclays had already walked away from the deal.
With adblock on, my back button works just fine.
My father and I are small business owners in two entirely different fields. Every now and then we talk about what we've been hearing - scuttlebutt etc. Both of us, in different cities multiple states away, heard that this was going to happen at least 7 months ago.
There has been a bunch of media coverage about the bank's financial woes as well.
I'd have moved off their infrastructure a long time ago. I know in some cases it's easier said than done, but I feel like you really had to know that this was coming, especially if you're a big corporation. There's really no excuse for being caught like this when even a small time guy like me could have told you this day would come.
Edit: For clarity - while there are ways to get infusions of funds to avoid this scenario, I was sure it would be inevitable because there is a well-founded reputation of corruption, fraud and a general culture of shady practices surrounding this bank. High profile folks at the bank were charged with some of these crimes in 2018 if I remember correctly.
A relative, years ago, made me aware of a small deposit they’d made in my name there. After being rotated between half a dozen customer service reps, communicating over e-mail and WhatsApp and SMS, contradicting each other at every turn, I gave up trying to set up an account to manage and/or withdraw the funds.
Abysmal service culture. Not surprising to see that had knock-on effects.
PhonePe, a payment app valued at $7 billion and a subsidiary of Walmart owned Flipkart has been down since this morning since Yes Bank was the only bank they had partnered with since 2016.
A $7 billion dollar company running without failover / redundancy is just crazy.
Google Pay, their competitor on the other hand has atleast 2 banks (HDFC and Axis) it has partnered with.
What's worse is Yes Bank/Phone pe handled around 40% of daily UPI transactions - so millions of folks have been affected by this screw up.
That's kind of the point, but the valuation is very misleading when it comes to expectations like this.
PhonePe, the leading UPI-provider app was running it with Yes Bank as the partner, but the bank went down.
It's very likely now that Visa and Master Card network will never penetrate in India beyond the wealthy class that travels abroad. This was kind of a pre-emptive strike to keep rent seeking companies at Bay.
PhonePe is a cool app, which a lot of people, especially small time vendors accept.
I pretty much use PhonePe for everything these days.
Yes Bank launched PhonePe on Day 0 of UPI. The whole multiple bank thing was made possible much later via NPCI because of Google Pay.
I wouldn't blame them for it. And they managed to get back up in 24 hours, which is pretty decent. (The Bank itself is still down, but payments via PhonePe are functional as long as you have a non-yesbank account)
I was still hoping turnaround considering lot of people are using "PhonePay", but you never know.
I don't see how a private insurer would inspire the same confidence. The amount of reserves would have to be huge, and verified. Somehow, the insurer would need to be able to quickly wrest control over a troubled bank. And that's assuming the bank doesn't stop paying the insurance and 'forget' to update its website.
They do publish details about premiums in the annual reports (last report is still pending, sadly)
As it happens Yes Bank they have given out a lot of bad loans which did not get repaid. That is the primary reason Yes bank is not doing great. Apart from this there are allegations of corruption against the top level executives of the bank. But mainly its the concern about the bank's balance sheet that has prompted RBI to act.
They are under because of a lot of shady practices like knowingly giving out bad loans, corruption and self dealing that enriched it's founder. He had been ordered by the regulator to step down 2 years ago, but that didn't prove to be enough to save the bank.
For example the founder and ex CEO was involved in a scheme where Yes Bank disbursed bad loans to a prominent business (Indiabulls) family, in exchange for which the family's business lent huge sums to Yes Bank's CEO and his children.
Beyond this Yes Bank loaned out several billions of dollars to companies that other banks were unwilling to lend. Most of that money never came back.
The Bank of England used to let employees have mortgages with the bank. Random people couldn't get a mortgage from the Old Lady but their employees could. It's a huge National Bank, giving some middle manager a $0.5M mortgage on a nice house for his family at a slightly nicer rate than commercially available is a cheap perk and no real threat to stability of a trillion dollar GDP economy.
But while it's different in quantity and character it sends the wrong message. The newly created First Bank of Elbonia sees this and figures it's fine to lend $500M (a tenth of tiny Elbonia's GDP) to their chairman who is coincidentally also the brother-in-law of their newly elected Grand President. The money is never paid back, Elbonia sinks into a swamp of corruption. Oops.
So the Bank of England stopped offering such perks. It's a shame, but it's like when you're looking after young kids. Maybe you'd just run across this road, but with kids watching we should walk to the proper crossing and do it by the book. No self-dealing.
Lending $500M without collateral seems like a completely different thing.
Even UPI had pretty low margins, and wasn't really making them much money to make up for the HUGE losses they had because of the bad loans.
There's actually a big bank in India called "Indian Bank" that is not affected here.
But a lot of boats have been rocked across large and small banks. Lots of small-banks are getting merged, and NPAs are at peaks.
But RBI's refusal to let Yes Bank collapse means that it can only go upwards from here.