Did Zerodha shift from HDFC to Yes bank for keeping our funds?

I received funds which mentioned ‘Yes bank - Zerodha’
Before it was HDFC bank ?
Was there any prior information given to clients ?
Why move our funds to such a bank like yes bank than HDFC bank ?
Correct me if i’m wrong.
As a client I need clarification.
@nithin @siva @Bhuvan ?

We are using Yes Bank only to power fund withdrawals as they are processing it faster than HDFC. No money actually sits with the bank overnight, so there is no risk.

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Thanks for the clarification. @nithin

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How risk is associated with overnight deposition??? Most of the Transactions are being done in the day time so I think in day time also it is equal risky.
Isn’t it. Please clarify my doubt or let me know if I’m wrong.
Thanks…

As mentioned by Nithin, only fund withdrawals are with yes bank, they constitute a tiny percentage, no need to worry about this. Zerodha will be responsible even if something happens.

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Which bank has most funds of zerodha’ clients in terms of percentage or is it evenly distributed among various banks? @nithin

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Zerodha has 40 lakh customers. Assuming even average 2.5 lakhs unused cash sitting in the account, Zerodha has minimum 1lkah crore of customer funds .
Depending on volatility or next day withdrawl estimate, customer buy CNC stocks amount to be remitted to clearing corpn +all futures buy/sell margin to be remied -
Zerodha (to afford Free CNC buy & sell equity trades)will be investing some % of this corpus in

  1. overnight corporate loan market
    2)overnight treasury market
    & earn some interest as Corporate current account does not pay interest unlike sb account.
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Distributed among HDFC, SBI, ICICI, and then the rest.

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:slight_smile: you couldn’t be more wrong on that. I think the entire brokerage industry in India doesn’t have even half of that in customer funds lying with the broker. Customers when not using funds withdraw or brokers are forced to send it back due to quarterly settlement.

Do brokers earn interest on the idle client amount? Just curious to know because some people say the money is kept in the current a/c which earns no interest. If they do earn interest I guess it’s around 2.5%, correct?

Do brokers keep clients money with clearing corporation?

Yes, funds are placed with clearing corporations. If there are any unutilized funds (settled) then yes brokers do earn an overnight interest. Float income as it is called is an income for brokers around the world. When I say settled, I mean if stock sold, funds get settled on T+2 and similarly profits on F&O gets settled on T+1. Yes, approximately 2.5% is what brokers make. But remember that if there is inactivity, money has to be sent back to the customer bank account in 30 days (SEBI regulation). So float income is significantly lesser for brokers in India as compared to the rest of the world where brokers are not mandated to send money back to a customer bank account.

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Pls use safer banks like SBI, ICICI Bank etc. With its stock price tanking to rock bottoms, y on earth did u choose this Yes Bank no matter how safe that they claim. Of all the banks, u guys chose Yes Bank despite knowing it’s failure. Unbelievable :unamused::smirk::smirk::angry::angry::angry:

This thread is hilarious.

That retail investors are advising promoter of a brokerage firm, which he took from zero to $ 2 billion, that how to run the brokerage company.

However, it is not a surprise.

Because, similar kind investors are also advising , in various value investing forums, what RIL should do, what they are doing is wrong, and they also say there is poor corporate governance in RIL !

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Yes this thread is hilarious at so many level.

Also I am pretty sure that lot of people who are advising @nithin on failures of yes bank, would also be holding yes bank shares in their Zerodha account :slight_smile:

As such Zerodha was cautioning its client buying Yes bank in Aug 2019

And now client are advising Zerodha on Yes bank :rofl:

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Don’t you see, we don’t want both our equity investments and our liquid cash in the same company. Just prudence, is all!

Edited to add: In case it wasn’t clear, that was supposed to be sarcastic … .

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Just to do payouts, that is a tiny fraction of our funds, also it is on broker if anything happens in this case, no need to worry about.

We (your customers) probably have a very different (and wrong) mental model of how things work in the back end of your operations, and this is probably the reason for the alarm. If you could explain why “just doing payouts” is actually safe, in some simplified terms, then that will go a long way in soothing fears.

For example, here is one model I have for why using Yes bank is really safe. This model is likely incorrect, because I have not much of an idea about how banks really work:

Since Yes bank is a bank, it has access to the clearing system which is used by all banks. To do payouts what Zerodha does is essentially the following: Zerodha keeps its money in safe banks such as HDFC bank or SBI. Every day, Zerodha sends Yes bank a list of the payouts to do that day, with the recipient bank account details and the amounts to be transferred. Yes bank takes this list to the clearing house and does their inter-bank clearing stuff, and this money goes from (say) the HDFC bank account of Zerodha to the recipient’s account. The money is really not with Yes bank in any real sense of the word; they are just the messengers who tell other banks where to transfer the money.

Now, this model is probably very wrong. But there is some reason why you say that using Yes bank is not cause for concern. And I imagine (again, based on my ignorance) that this is because the money is with Yes bank only for a very small duration. If this is indeed true, and if you could explain why this is the case, then people will be less worried. Otherwise, “just doing payouts” doesn’t mean much to most of us.

(This is true in other cases as well. When you, as an expert, explain the workings of share and market-related things, we may be reading the same words, but would be building an entirely different model in our head. So when people don’t seem to be satisfied with repeated explanations, it may help to clarify things a bit. )

For example if we have funds of 1000 rupees, payouts will be less than 1 paisa per day, so every evening we do payouts, we transfer funds to yes bank and they will process them, even that money won’t sit in yes bank overnight. Hope this erase your fears, even if something happens during that few hours it is on us, our networth (zerodha own funds) is much much larger to cover it.

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You do know right that SBI Now owns almost 35% of yes bank. Along with it if you consider other financial institution like ICIC, LIC, HDFC group, total holding of such financial institution in yes bank would be close to 45-50%

So basically SBI, ICICI bank are safe, but bank yes bank in which they almost have majority holding is not safe :rofl:

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