Professor Vikas Srivastava of IIM Lucknow says that from a credit risk perspective, in most countries where central banks are reasonably efficient, approximately 2.3 per cent of loans and 1.6 per cent of deposits on an average are at risk. “So, in the normal course of doing business, banks would provision for recovery of such loans either through higher pricing or higher provisioning. In the case of risky businesses, banks will not provide loans unless they are matched with higher provisioning,” says Srivastava. He explains that banks and regulators have to pick up on early warning signals, which in Yes Bank’s case, appeared when profits went down from Rs 4,200 crore in 2017-18 to Rs 1,700 crore in 2018-19 and the expenditure of the bank increased from Rs 21,300 crore to Rs 32,500 crore. ‘Other provisions and contingencies’ went up from Rs 1,600 crore to Rs 5,800 crore, while the provision coverage ratio was inadequate, which means that the bank was looking at higher expected losses than usual in the credit space. The liabilities were around Rs 68,400 crore, of which approximately Rs 20,900 crore came from deposits, signalling that the bank was borrowing the rest in the short term.
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