YES BANK: INTRODUCTION
YES BANK is one of the leading private sector lenders in the Indian banking and financial system. It was incorporated in November 2003 and started its operation from August 2004 with the mission; to establish a high-quality, customer-centric, service-driven, private Indian Bank catering to the ‘Future Businesses of India’. YES BANK is the outcome of the professional entrepreneurship of its Founder Rana Kapoor and Ashok Kapur with their
competent top management team.
YES BANK is India’s fourth-largest private sector bank. The bank is currently operating across all 29 states and 7 Union Territories in India with a branch network in 1,120 locations and 1450+ ATMs (Annual Reports,2019).
YES BANK: PRODUCTION, SERVICES, AND OPERATIONS
YES BANK is one of the leading banks of India providing a complete range of customized banking solutions. This bank considers technology and innovation as critical pillars and emphasizes knowledge banking. As per the Annual Report of 2019, 2.37 lakhs individuals have already taken the products and services and have been a part of YES COMMUNITY, YES BANK’s unique community engagement program. Some of the widely marketed products and services are:
- Investment Banking Solutions
- YES First Corporate Credit Card
- YES Prosperity Purchase Credit Card
- Treasury and Risk Management Solutions
- Transactions Banking Solutions
- Debt Capital Markets
- Surplus and Investments
- Digital Banking
YES BANK is dedicatedly serving its customers with the help of 21,136 employees working across the nation in 1,120 branches (Annual Reports, 2019).
YES BANK: FINANCIAL HIGHLIGHTS
This bank is one of the largest private sector banks operated in India. The financial performance of any company/organization reflects the current position and holding of the company/organization. Particulars of the financial statements show the true picture of the performance of the company. Some of the crucial financial headings are presented below:
|Particulars||Figure 2019||Figure 2018|
|Total Assets||Rs. 3,80,826 crore||Rs. 3,12,446 crore|
|Advances||Rs. 2,41,500 crore||Rs. 2,03,534 crore|
|Deposits||Rs. 2,27,610 crore||Rs. 2,00,738 crore|
|Shareholders’ Funds||Rs. 26,904 crore||Rs. 25,758 crore|
|Capital Adequacy Fund||16.5%||18.4%|
|Net Profit||Rs. 1,720 crore||Rs. 4,225 crore|
|Basic Earnings per Share||Rs. 7.4||Rs. 18.4|
|Return on Equity||6.5%||17.7%|
YES BANK: CRISIS
YES BANK is yet another bank that is currently creating a buzz in the Indian financial market. Reserve Bank of India (RBI) has already been involved in the YES BANK case to rescue the bank from the crisis and maintain confidence in the Indian financial system.
The Indian banking system has been facing various crisis situations such as the post-measure impact of demonetization-2016, YES BANK’s governance, and compliance issues-2017, IL&FS and Non-banking financial companies’ crisis-2018, Non-performing assets crisis in banking, etc.
Kapoor Vs Kapur
YES BANK governance and compliance issues started when one of the co-founders Ashok Kapur was killed during the terrorist attack of 2008. The battle between Kapoor versus Kapur went to court. Madhu Kapur, the wife of Lt. Ashok Kapur, accused Mr. Rana Kapoor of sideling her and taking decisions alone. This resulted in the wrong impression of YES BANK in
the Indian market. (Yes Bank crisis: The rise and fall of the Rana Kapoor-founded bank – the story so far, 2020)
Extensive Non-Performing Loan (NPAs)
YES BANK, from its inception, has been rapidly expanding its corporate loan lending aggressively to corporates. This aggressive policy of the bank led to NPA stress in 2015. UBS, a global financial services firm, in a report, alarmed about the lending portfolio of YES BANK. The firm pointed out that YES BANK had the strongest growth in loans to potentially stressed companies. YES BANK has 62 percent loans from corporate houses, 47 percent of the amount was disbursed to 12 loan accounts.
In 2019, Outlook Money made a comment on YES BANK stating, “If nobody will lend you money, Rana Kapoor certainly will.” YES BANK management had been taking some risky credit decisions which involve lending to corporate houses such as Anil Ambani Group, Essel, DHFL, IL&FS, Vodafone, CG Power, Cox & Kings, Jet Airways, etc. which are either facing some financial stress or have been bailed out of the stress. YES BANK’s total
exposure to IL&FS and DHFL was 11.5% as of September 2019. Reliance Group has been bankrupt, Vodafone has merged with Idea Cellular, IL&FS and DHFL had default issues and have been bailed out. (RBI monitoring Yes Bank since 2017, noticed governance issues, weak compliance: FM Sitharaman, 2020)
YES BANK has increasing value for total advances over the period. 5 years CAGR for total assets is 34.1% and YES BANK is among the fastest-growing banks. Along with the propensity of providing loans, there was significant growth in the gross and net NPAs reflecting the quality of their loan and the credibility of their corporate clients. From 2014 to 2019, total assets have increased by ~ 335% but the growth in GNPA and NNPA was ~939%
and ~3620% respectively
|2018||Rs. 3,277 crore|
|2017||Rs. 6,355 crore|
|2016||Rs. 4,176.7 crore|
Governance and Compliance Issues
YES BANK has been experiencing some serious governance and compliance issues and practices in recent years. Reserve Bank of India along with other regulatory bodies has been showing some serious concern and has been acting accordingly in the YES BANK case. YES BANK had been struggling with its top management positions as the bank has seen regular turnover recently. There are various actions in the pasts, by the management, which has reflected the incompetency and insensitive nature of the management.
RBI raised issued regarding the reporting of NPAs in its financial reports. The assessment done by the RBI on NPA of YES BANK showed a huge divergence from its reported NPA value. Such misrepresentations and reporting question the top management intentions. In their annual report of FY 2016, YES BANK has reported the gross NPA of Rs. 748.98 crores but RBI identifies the gross NPA to be Rs. 4925.68 crores which are 557% higher
than the reported. Similarly, Net NPA disclosed by the bank in the FY was 0.29% but RBI has assessed the value to be 3.67%. (Birdar, 2017).
Similarly, YES BANK has reflected falsified information in the Movement of Gross NPA and Provision for NPA from FY 2016. Top-level management was aware of this. Some of the evidence that shows bad governance and compliance issues are:
- As per the officials of Enforcement Directorate (ED), YES BANK allegedly disbursed Rs. 20,000 crore to some corporate companies and Non-Banking Financial Companies on Rana Kapoor’s instruction. These loans were not as per the standards procedures and guidelines of the RBI.
- YES BANK bought debentures from DHFL worth Rs. 3700 crores and DHFL booked loan amount worth Rs. 600 crores to a company owned by the daughter of Rana Kapoor against a mortgage worth Rs. 40 crores (PNS, 2020).
All such suspicious events led to the step-down of co-promoter Rana Kapoor after the interference of RBI. In 2019, Ranveer Gill took over the responsibility as MD and CEO of YES BANK.
Deteriorating Financial Positions
|Year||Total Advances||Gross NPA||Net NPA||EPS||ROE|
|2019||Rs. 2,41,500 crore||3.22%||1.86%||7.4||6.5%|
|2018||Rs. 2,03,534 crore||1.28%||0.64%||18.4||17.7%|
|2017||Rs. 1,32,263 crore||1.52%||0.81%||15.8||21.5 %|
|2016||Rs. 98,210 crore||0.76%||0.29%||12.1||19.9%|
|2015||Rs. 75,550 crore||0.41%||0.12%||9.9||19.0%|
|2014||Rs. 55,633 crore||0.31%||0.05%||9.0||25.0%|
We now already know the truth behind the advances and quality of advance disbursed by the YES BANK. The NPA crisis in the bank has been the central issue for the YES BANK crisis. This crisis could have been stopped but the governance and compliance issues from the top-level management made the situation worse.
All these actions resulted in the deterioration of the financial position. From the table above, we can see the constant increase of GNPA and NNPA, decreasing ROE, and fluctuating value of EPS.
The financial stress was also reflected in the capital market. The stock price of the bank fluctuated from a period high of Rs. 404 per share too low of Rs. 5.55 per share in just 5 years. Currently, the shares are trading at around Rs. 27.70 per share. EPS for March 2019 is -17.53. Similarly, the loss for the same year was recorded to be Rs. 4057.28 crore. In 2018, YES BANK recorded a profit of Rs. 4178.28 crore.
YES BANK: REGULATORY AND REVIVAL ACTIONS
YES BANK has been under the watch of the regulatory bodies since the NPA crisis of 2015.Finance Ministry and Reserve Bank of India has been regularly observing and making efforts to rescue YES BANK from financial crisis time and often. Some of the regulatory actions and decisions for the revival of the bank are described as below:
- RBI has assessed compliance by banks with extant prudential norms on income recognition, asset classification, and provisioning (IRACP) as part of its supervisory processes. RBI conducted its first Asset Quality Review (AQR) of banks in 2015 where they found divergence of Rs. 4,176 crore in gross NPAs in FY 2015-16.
- Since 2017, RBI has been concerned about governance issues and weak regulatory compliance at YES BAN, besides wrong asset classification and risky credit decisions.
- Nirmala Sitharaman, Finance Minister of India, superseded the board of Yes Bank and placed withdrawal restriction. In the same matter, RBI advised a change in management. Finance Minister also proposed a restructuring scheme for YES BANK. Along with it, RBI directed YES BANK not to grant or renew any loan or advance, make any investment, incur any liability or agree to disburse any payment, or otherwise enter into any compromise or agreement and transfer or dispose of any of its properties or assets (RBI monitoring Yes Bank since 2017, noticed governance issues, weak compliance: FM Sitharaman, 2020)
- RBI imposed restrictions on the YES BANK withdrawal limit to Rs. 50,000 for a moratorium period of 30 days. The moratorium period was lifted on March 18, 2018.
- YES BANK announced to sell its share worth $1.2 Billion to Canadian investor Erwin Singh Braich which later was rejected. (Anand & Thomas, 2019)
- The government has guaranteed public deposits.
- As a YES BANK Reconstruction Scheme, private lenders ICICI Bank, HDFC, Kotak Mahindra Bank and Axis Bank came to rescue. SBI has committed the total investment of not more than Rs. 10,000 crore and for now SBI has approved the injection of Rs. 7,250 crore in YES BANK Limited i.e. 725 crore equity shares. Similarly, ICICI and JDFC have to infuse Rs. 1,000 crore, Axis Bank will infuse Rs. 600 crore and Kotak Mahindra Bank Limited is expected to invest Rs. 500 crore. (Nandi & Gopakumar, 2020)
- The shareholding pattern will have 45.74% of SBI, ICICI and HDFC will hold 6.31% each, and Axis Bank and KMB will hold around 3.5 % each stake in YES BANK. SBI will not be allowed to lower its shareholding below 26 % in the private lender over the next three years. (Roy, 2020)
- All the new investors will subject to a lock-in period of 3 years.
YES BANK has been the perfect example of the success and failure of the Indian Banking system. The success story of YES BANK reflects the potential of the financial system and the reasons for downfall reflect the loopholes in the system. From the YES BANK crisis, all other participants of the financial system can learn about NPA, credit profile, compliance and governance, market volatility, etc. and how these factors can impact the financial position and investment decisions of the banking sector. Also, such a crisis focuses on the role of governance and compliance, regulatory bodies, etc. in a handling crisis situation and in the prosperity of any institution and related industry.
- Anand, N., & Thomas, C. (2019, November 30). Yes Bank seeks up to $2 billion in the preferential new share issue.
- Annual Reports. (2019)
- Birdar, S. (2017, May 17). Yes Bank: RBI Finds 5x More NPAs Than Bank Reveals, Bank Says It’s Not Hiding NPAs.
- Correspondent, I. T. (2020, March 14). Yes Bank: Reconstruction scheme approved, moratorium to be lifted on March 18
- Financials. (n.d.)
- Nandi, S., & Gopakumar, G. (2020, March 14). Yes Bank to get a lifeline as govt approves SBI’s rescue plan.
- PNS. (2020, March 09). Rana Kapoor in ED custody.
- RBI monitoring Yes Bank since 2017, noticed governance issues, weak compliance: FM Sitharaman. (2020, March 6)
- Roy, S. (2020, March 13). YES Bank’s Reconstruction Scheme: The story so far
- Singh, H. (2020, March 6). Yes Bank Crisis: 5 Key Reasons to Know.
- The reason behind Yes Bank crisis and what RBI is doing. (2020, March 6)