Who is behind Yes Bank?
Rana Kapoor was the co-founder and CEO of the bank. He studied in Delhi and went to Rutgers University in the US. He went on to work in the Bank of America among other big banks.
When Prime Minister Atal Bihari Vajpayee’s government was reforming at a rapid speed between 2002 and 2003, before the ‘India Shining’ period of 2004, they opened up bank licensing to the private sector. Kapoor and his brother-in-law, Ashok Kapur, got the license in 2003, and Yes Bank was launched on 21 January 2004.
Ashok was a more conservative banker, while Rana was more flamboyant.
In 2008, when the terror attack in Mumbai took place, Ashok was one among those killed, leaving Rana to run things. Despite the litigation between the families, the bank continued to do well. In 2014, when the government changed, the bank was reaching its peak and reported non-performing assets (NPA) of 0.31 per cent. By 2017-18, the bank’s valuation crossed Rs 1 lakh crore.
Top 5 Reasons why YES Bank is failed
- Bad Loans Issued By Yes Bank Turned Into NPAs
Yes Bank has had its share of bad luck when it decided to invest in some companies that went on to fail, such as Jet Airways. Some other failures of the banks are IL&FS, Dewan Housing, Jet Airways, Cox & Kings, CG Power, Cafe Coffee Day, Altico, etc.
The bank gave out loans that soon turned into NPAs. For those who don’t know, NPAs are just loans or an advance payment granted by banks for which the principal amount or interest remains overdue for a period of 90 days or more. Yes Bank indulged in quite a few of these, causing the bank to decline.
- Governance Issues And Practices
As confirmed by the RBI, the governance of Yes Bank is very much at fault. It was under scrutiny for a long time as the bank did not report the true values of NPAs, and the bank’s CEO Rana Kapoor has had his name dragged through the mud.
Additionally, there have been quite a few resignations from board members of the bank – Ashok Chawla, Vasant Gujarathi & Rentala Chandrashekhar, which led to the bank’s inability to raise capital.
- Inability to raise capital
The bank was unable to raise sufficient money to meet the capital required, which is mostly due to the bad investment and loans given out by the bank.
- High Risk Money Lending
As per reports, the bank has been lending money to entities who were unable to raise any from anywhere else.
- No Investors
Given the deteriorating state of the bank, there were no investors ready to put in money, which led to further failure of the bank. There are reports to suggest that the faulty governance was to blame for this too. There have been no solid proposals from any investor, despite the many attempts made by the bank for its revival.
- Outflow of Liquidity
The worsening state of the bank was very much in sight, causing huge amounts of withdrawals from the bank. As everyone knows, depositor’s money is what keeps a bank going. As that started going in reverse, the bank started declining, leading to government intervention.
All in all, the domino effect of the deterioration of the bank is quite evident, and we wonder if Yes Bank will be able to rise with the help of the government and the taxpayers’ money. It’s wait and watch till then!
What happened?
Yes Bank’s decline started almost immediately after its peak. The peak made Rana brash, and he began lending to people who were under stress, including the Anil Ambani Group, Dewan Housing Finance Corporation Ltd, and the Zee Group.
As these debts started to pile up, (then RBI governor) Raghuram Rajan began his clean-up of the banking sector. His tenure was between 2013 and 2016, and he had figured that banks were understating their NPAs. The government and banks were unhappy with this, thinking he was revealing too much about the underbelly of credit systems.
His successor, Urjit Patel, was even tougher on the issue. More and more muck came out of the banks. The RBI found, year after year, a divergence between what Yes Bank’s claims about its NPAs and what the RBI calculated. With every passing quarter, the bank was forced to concede more and more NPAs.
In August 2018, the RBI refused to extend Rana Kapoor’s three-year tenure. By January 2019, a new CEO had been instituted. Everytime the bank tried to raise its capital by selling shares, more ugly truths about the balance sheet emerged, pushing prices further down.
In the third quarter of 2019, the Tirupati temple trust withdraw it's Deposits from Yes Bank worth Rs 1,300 crore.
What next?
The State Bank of India and the Reserve Bank of India have likely conducted a thorough due diligence on the bank, and have already conducted negotiations between SBI, RBI, and other investors to buy into the new rights issue that the SBI holds.
SBI can go down to 26 per cent shareholding, but not below because it has to give the bank stability. Because SBI has the clout, it can also go after borrowers who still owe the bank money and recover it.
This is the third big bank failure, and the first time this model — of buying the bank’s shares — is being used by the government. It will have a negative effect on the 81 bonds, and other banks, like IndusInd Bank, may come under stress.