YES Bank: Effect on Economy and How can it be revived?

Due to the banking crisis in our country, the YES Bank has collapsed. We have mentioned why did this happen in our other article which you can read by clicking here. What effect does it have on you and the country’s economy? How can it be revived? Let’s have a look at this article and get to know the entire story.

Why do Depositors Suffer?

The working of a bank is very interesting. All the money that is deposited by all the depositors in a bank is collected and kept by the bank in one place. It uses that money to extend loans to other people which is where the bank earns its profit from. So at any point in time, if all the depositors of a bank want to withdraw their money then the bank would not have that amount of money because it has used up that money to extend loans to other people. The requirement of RBI is that it should be 4% or more, i.e., all the money that is deposited in a bank, the bank should have a cash reserve of at least 4% of that money so that people can withdraw 4% of the total deposited money. This ratio is called the cash reserve ratio. But in the case of YES Bank, it gave out the loans and the money disappeared and the bank became unable to maintain the cash reserve ratio.

So, during this crisis, if everyone tries to withdraw money from YES Bank, then there wouldn’t be enough money. Furthermore, when a bank is in crisis, then often the people want to withdraw their money in panic and this is called Bank Run. In order to avoid this, RBI puts a restriction that not more than a certain amount of money can be withdrawn at a time because it would lead to Bank Run.

Who Took the Loans?

The companies that were given loans and they were not able to pay back included Cafe Coffee Day, DHFL, Cox & Kings, Reliance, Essel Group, etc. The majority of loans given by the YES Bank were given after 2014 which is visible in the loan book of the bank. The loan book states that loans worth 55,000 crore rupees have been given out in 2014 but by 2019, these loans increased to 2 lacs 41 thousand crore rupees despite knowing that the condition of the bank is deteriorating.

Is Your Money Safe?

Despite all of these things, if your money is deposited in the YES Bank today, there is no need to be afraid. Your money is safe and you will get it back because YES Bank is such a huge bank the government cannot afford it to fail under any circumstances because so many people are dependent on it and if depositors do not get back their money then this would cause the depositors to lose their confidence in the banking system. Not only of the YES Bank customers but also all the other bank customers would feel their money is not safe in any bank no matter how big the bank is. So they would withdraw their money and this would cause a bank run in all banks all over the country. The entire banking system will collapse.

How to Save the Bank?

In order to save the bank, the government will bail this bank out, i.e., the government is mounting pressure on the government companies and government bank SBI to buy this bank. SBI has already said that it will buy a 49% stake in YES Bank at the cost of 2,450 crore rupees. The rest has not been decided.

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