 Hello and let's talk about Yes Bank. The government has moved to put a cap on withdrawals from the bank for the next month and is looking at a major restructuring plan. However, is this too little and too late? As the people of the country watch the crisis unfolding with apprehension, many key questions remain. How did the government allow this crisis to escalate to this level? Where did the bank make mistakes and how was this slide not stopped earlier? We will discuss all these points but before that, here are some basic facts about the crisis. As we mentioned earlier, the RBI has stepped in to supersede the board of the Yes Bank. This is a very, very rare move in the history of banking in India. The RBI has also imposed a moratorium on withdrawals for the next one month. People can only withdraw up to Rs. 50,000 from their own accounts in Yes Bank over the next month, that's until April 3rd. Rather belatedly, the banking regulator has also acknowledged that Yes Bank has undergone a steady decline. The RBI yesterday imposed a lockdown after the bank failed to master investors. Yes Bank's management had claimed that Microsoft, a Canadian Lumber Tycoon or Cerebrus Capital, one or more of these would invest fresh funds into the bank but nothing of this is materialized. Now an administration administrator has taken over the bank's management and Yes Bank is set for either a merger or a takeover. The burden would be passed on to possibly a consortium of LIC and SBI which is the biggest lender. The shares of Yes Bank tanked on the indices on Friday, losing more than half their market value. As of now, there is no real plan in sight for the bank from the government, though it has said that it is drawing up a plan of action. The NPAs that is the non-performing assets of Yes Bank have been steadily climbing reaching Rs. 3,277 crores in 2018-19. It has a Rs. 2.09 lakh crore deposit book as of the end of September 2019. Earlier in the day, Pragya from NewsClick spoke to senior journalist Paranjoy Guha Thakurtha on this crisis and the reasons for it as well as how it might unfold. Here is what he had to say. Paranjoy, what is the reason for the sudden lockdown on Yes Bank and what happens to the people who've got deposits there? What happens to the plan that Yes Bank had talked about of having all these investors who are going to come in and pump the bank up? What's going on? Pragya, the crisis in Yes Bank was coming. A lot of people, a lot of financial analysts could sense that a crisis was brewing. Firstly, say analysts like Hemindra Hazari, if you go back to the interview, I did it with Hemindra Hazari. He described that internally within the bank, it was like a shake period tragedy where the promoters were fighting each other. Now what happened is from there, analysts like and Hemindra Hazari said that there was something terribly wrong with the bank. It had loaned monies to large numbers of companies and conglomerates including India and many others and many of these loans had become non-performing assets. Now the Central Bank and Banking Regulator, it literally forced the promoter Mr. Rana to quit. He literally was told you go. But the crisis wasn't stemmed. Today we have a situation where the Reserve Bank of India in order to prevent a deep crisis, a systemic crisis because after all it is a large private sector bank. Among the largest private sector banks, and a bank like this collapses, it sends shockwaves right through the economy, which has already happened. The stock market collapsed, the stock prices have collapsed, and even the stock market indices have collapsed. Now what happens is after the experience of the PMC, the Punjab and Mahatma Chowkorn to the bank, the Reserve Bank has realized that it better get its act together. So it's given itself a month and try and ensure that the bank survives. There is a talk that the Life Insurance Corporation India would pump money to save the bank. Now we need to look at it from the point of view of the depositors. Already there are news reports that the depositors have been lining up, queuing up outside the automatic tele-machines and what the Reserve Bank of India has done. In the case of the PMC, it said you can't withdraw more than 10,000 rupees in a month. In the case of the Yes Bank, they are saying you can't withdraw more than 50,000 rupees in a month, that is to be heard about irrespective of what amount of money you may have in your account. This is to prevent the crisis from becoming deeper. It's extremely sad that the banking regulator ignored the warning signals and allowed the situation to deteriorate to a point where you had to take these kind of crisis measures. And it's also sad that much of the mainstream media didn't report on this. Yes Bank has been a major advertiser in the past and has been a major sponsor of events in the past. So including events by some of the largest financial publications, publications and functions where you see the top brass of the country from the prime minister to the finance minister, everybody comes. So you know the next crisis that the PMC has prevented much of the population of this country including those who have their hard earned money and savings in Yes Bank from realizing how deep the crisis was, how serious the crisis was. Now the government says that they will solve the problem in about a month, that the lockdown will continue only for about a month and that the administrator, the government will come up with a plan. Is there any site of this revival plan on paper so far? We're also up in money. So this is right now speculation talk, nothing in writing. In fact, very recently when the authorities of Yes Bank asked whether it's correct or not, they said in a filing to the stock exchange authority that you know nothing has official yet, nothing on paper. So the point I repeat my point, this is a huge crisis and we see this as a continuation of a series of crises in the financial sector. We saw it in the non-bank financial company, we saw it in the ILL and FES in the structure of the Indian Financial Services Group, we saw it in the demand of the finance sector. We saw it in the cooperative bank sector like the PMC and now it's also become regretfully, this is a crisis now which has hit Yes Bank which is a schedule commercial bank and a large bank in the private sector. Thanks, thanks a lot, but enjoy. Thanks for that. Let me put you in touch with Mr. E. Patecharya, he is a financial journalist with a full-time editor of Business Standard newspaper and he's right now also the editorial director of Business Standard and he's with us, we're here tonight and he can explain to you several things about the financial sector, what is the solution to this crisis in the banks. So let me put you on to Mr. Patecharya. Thank you. Namaste. Namaste. So first of all, this is the question that comes to mind, what will happen to the depositors whose account is said to be over 50,000 rupees, you can't get more than that in a month and secondly, because we don't know our connection until when it will go on, the second question is what will you say about the economy, that there is a problem in the cooperative sector, there is a problem in housing, there is an infrastructure-financing problem and now this is a banking, another bank is collapsing. So these are the two things. So what will happen to your first question of the depositors, we are going to discuss two things at this time. The first is that the 50,000 deposit with the role of the medium is very good, it is a very good situation, but you will be disappointed that the government has changed the law and every deposit that is 500,000 rupees from 1 lakh to 500,000 rupees is still there. So if you believe that this bank has some effect, if it happens that the bank's deposit will be completely destroyed by the bank's development, then I feel that every depositor will be at least as serious as the deposit of 500,000 rupees, their insurance is still in the system. But this is the second question. The first question is that the money from 500,000 rupees can be brought from there. This is a matter of tension, it is a matter of concern, but I think the second question is that our country has two difficulties. The first is that the regulation of the banking sector has been very difficult in the last few years. Because if we believe that the banking sector has a lot of internal governance and the regulation of the entire banking sector and the regulation of the stock market, the question is that who is the biggest bank with a listed company, so what are the steps that need to be taken, what are the steps that need to be taken, what are the steps that need to be taken We also had in that video veteran financial journalist A.K. Bhattacharya who was speaking to us. As is clear, this crisis is not new, it was in the making for quite some time. In fact, some months ago we spoke to independent market analyst Hemendra Hazari on the origins of the crisis and he explained what happened and what would this lead to. Let's see what he had to say. In Yes Bank and why you describe what has happened in the recent past in the bank as a grim Shakespearean tragedy, a tragedy where you quote Claudius and Hamlet saying when sorrows come they come not single spies but in battalions and you say he might as well have been speaking about the woes of the shareholders of Yes Bank and if you can summarize why there's been this upheaval that has happened at the top of Yes Bank and its board of directors, if you can succinctly summarize recent developments. You see this happened really a year ago when RBI came out with a disclosure for all banks that for the year ending FY I think 2017 banks had to disclose where there was divergence from what their published accounts audited accounts were reporting and what the RBI inspection had found and if it exceeded 15 percent of the RBI's estimates of NPAs or of net profits what the bank that is a non-performing assets of the bank. That's unpaid loans. Correct which are not being paid back. Stressed financial assets. Yes please go on. So if it was no the stress financial assets would normally include restructuring also but this does not include that. So if the RBI inspectors found from their calculations that the gross NPAs exceeded 15 percent of what the NPAs reported by the bank they would have to disclose it. If the profits were 15 percent lower than what they had reported then they had to disclose it. Now here was the first instance that the public and analysts would come to know whether the banks were actually fudging their account. This is evidence of fudging. Now it was found in Yes Bank that for two successive years for I think FY 16 and FY 17 the bank had reported divergence. Now this is very critical because the market valuation of the banks which are listed on the stock exchange is determined by the profits and the NPAs that they report. So if you are suppressing that number you are actually distorting valuation and market pricing. You are also the senior management salary performance is all linked to these numbers. So you're distorting senior management compensation. So to me it is a very big for par that you have been pulled up by the banking regulator for cooking your books. And in my opinion if a bank reports it once it is absolutely shameful. If it reports it in two consecutive years the CEO the chief financial officer the head of the audit committee of the board and the auditor must be immediately replaced. And our next story is about Nishu which is on everyone's mind these days the novel coronavirus. The number of cases in India has moved to 31 and across the world governments are scurrying they're struggling to contain the spread of the epidemic. We talked about yesterday about how the public health system in India was prepared or whether it was prepared to actually handle the crisis that might be coming in the next two months. Today we look at another aspect of the novel coronavirus outbreak that is the economic angle. What impact will this outbreak have on the world economy and on India's economy. To know more about this we talked to senior economic journalist Anindya Chakravarty. Here is what he had to say. Thank you so much Anindya for joining us. Thank you for having me. Yes so before we go into the most specific issues about India we've been talking about the coronavirus novel coronavirus for a few days yesterday we looked at what is the preparedness of the public health system and the kind of measures that are being taken but there's also a very important aspect that is the economic aspect. Yes. So could you first talk about the global picture itself what do you use because there's a lot of speculation is there going to be a recession what is you know how is it going to affect growth especially big economies like the China and US are involved so what do you think is a possibility the next couple of months at least. So I'm going to go by what is a new report by Nomura and they say that they expect first quarter which is January to March growth GDP growth in China and that is their best case scenario right to be zero okay no growth at all and if things go badly then there could be a negative one percent growth which means that the economy contracts which is not surprising because how is China actually dealt with it and it's dealt with it remarkably well because the WHO representatives who went to China they say that it's actually a very good what they've done is quite remarkable then what they've done is they've shut down entire cities and they've shut down factories they've shut down transport systems people have not been able to go from here to there and this actually hit China around their lunar new year right and therefore many people who would have gone home their migrant workers who big work in these mega factories right where Apple and all Foxconn and all produce their electronic goods and various other goods we know China is like the factory of the world right right they will find it difficult to go back so even if factories reopen it's not as if everyone's going to come back immediately shops are closed the entire trading system is down discretionary spending is down and early reports suggest that there's temporary unemployment in China which means that China which is a big driver of global growth will see a not a recession because it's a single quarter it could be two quarters then that case we'll have to say it's a recession but it will see a contraction right of its economy UBS believes that global growth its best case scenario will go down for I think they had initially projected about 4.1 percent but it could go down sorry they projected about 3.1 percent and that will go down at least to about two and a half 2.6 and it could actually half you know in the worst case scenario which is which is pretty bad if you look at it especially for us because we're already reeling under a very bad domestic demand problem so definitely there's a problem out there and with specifically with regard to India what do you see as the key sectors that might actually get affected because of this so if we look at what China directly supplies to us and in I think the first nine months of this fiscal imports from China account for about 20 odd percent of everything that we've imported from the world most of it is electronic goods right and electronic components because we really don't make make those chip and stuff that go into phones, laptops or anything that is made so that is a big chunk about I think 16 billion dollar 15 billion dollars worth of stuff is was brought in in the last nine months and from anecdotal evidence we understand as I was speaking to news click reporters and they were saying that they have been traveling they one of them told me actually Trina told me that she had been trying to get her phone fixed and we know how you get your phone fixed right you don't really go to the people who manufacture it because they'll rob you so you go to a gray market guy who says I'll fix it and what they fix it is this Chinese right past they've not been able to do that because Chinese goods are not coming in so they've not been able to do it they're quiet and they're not answering phone calls I broke a cell phone screen which I happen to do quite often and I've not been able to get it replaced because the guy go to says that I don't have anything because it's not coming from China and there's a report which came out last week last month actually late last month which suggested that there's been a significant drop in shipments from China and that means that often what happens is a company a manufacturing company they keep stock right it's not as if that they import things just and when they need it so they have about 45 days of stock but we know that the coronavirus thing started sometime in December in December and China started shutting things down from mid-January so it has already been a significant amount of time almost 45 days that cycle is coming so people will be out of inventory they will not know what to do and a lot of people will be stuck with inventory which they cannot sell stocks and there'll be people who'll not have inputs to produce things so that's a big problem which means that the entire cycle of production will get disrupted we know very few people are being employed out there already so now if they are also sacked you know what will happen right so another key question is the kind of possible responses governments can have in such a situation yes we know the public health angle to it the kind of saying now new testing centers more testing kits more investment of course but also in the realm of the economy itself what are the possibilities that governments have in terms of responding so let's look at what China is doing and want us to understand that China is a much more centralized economy even if it looks that that it's a market economy which it partly is China has not responded by cutting rates right we know that the Fed has actually cut the Fed fund rate in advance anticipation that things will go all right so what China has done essentially is to release funds it's made it easier for companies to raise funds pick it up it has also said that okay repayment schedules will be reworked for you so if you have taken a loan you'll be given some sort of a moratorium you'll get time to do it and it's easing supplies so it's it's taking care of these supply chains because such things essentially affect a supply chain production supply chain so that things can quickly come back into place and the way in which China has responded to this of course one would assume that China would probably be better at it than most other countries when it comes to India we know that the government of India has actually failed to even deal with domestic problems it has failed to deal with demand issues right already and I actually do not really hold out any hope that if things go bad in India that we'll be able to deal with it in any way one response the response essentially this is not a demand issue this is a supply issue so on top of a demand issue if you have a supply problem then I don't know what the government will do with it right the RBI might cut rates but frankly who's raising money in any case that they'll need to cut rates and employment especially could be very badly affected in such a scenario luckily for India and this is the ironically in a certain sense that the fact that we are not that dependent on international trade kind of insulates us but even Nomura's worst case scenario for India is also a 1% drop in GDP growth okay now we know India's GDP growth rate is terrible right now so 1% drop is a big drop the big big areas which employ people already already doing badly so let's look at construction in real estate the biggest employer after agriculture and that has actually not it's not going to really be hit by coronavirus what will be hit is another big employer which is trade hotels and restaurants and you know tourism which is one big chunk of employers we've already seen that happen so that will definitely be affected people will be scared about it thank you so much India that's all we have for this episode of let's talk we'll meet you on Monday at 3 p.m. with the latest news developments of the day until then keep watching news click