MASTER OF BUSINESS ADMINISTRATION

WORK INTEGRATED LEARNING PROJECT

Yes Bank – “What’s Behind the Crisis”

Submitted by

GAURAV TANDEL [1912040]

JINOY JOSE [1912033]

PRASATH SWAMIAPPAN [1912014]

VAISAKH GOKUL [1912026]

i
 ACKNOWLEDGEMENTS

We thank Dr. Satish Kumar Sagadevan, MAHE, Dubai, for extending his support and
guidance during Course of this Case Study and clarified even our smallest doubts.

We would be failing in my duty if we don’t acknowledge the co-operation rendered during

various stages of image interpretation by Dr. Rajesh Jayakar Pai, MAHE, Dubai.

We extend our sincere thanks to Dr. Jason Fitzsimmons, Chairperson School Of Business,
MAHE, Dubai, who was very supportive in helping us complete this Case Study at these
difficult times of the Pandemic.

We further highly grateful to Dr. S V Kota Reddy, Academic president, MAHE, Dubai, for
his continuous support & guidance.

GAURAV TANDEL

JINOY JOSE

PRASATH SWAMIAPPAN

VAISAKH GOKUL

ii
 ABSTRACT

The Purpose of this Case Study is to give an insight on what’s behind the Latest YES Bank
crisis and the further actions taken by RBI, YES Bank was India’s fourth largest private bank
and YES Banks Crisis raises questions on the countries whole banking system which is
currently going through a crisis. RBI (Reserve Bank of India) took an emergency measures
by putting Yes Bank under moratorium and imposed a withdrawal limit of Rs.50,000 per
month. RBI said it was necessary because of a serious deterioration in Yes Bank's financial
position. So, if a bank like this fails, not only will this affect its depositors, but a lot more
people will be indirectly affected if their companies and their services are tied up with this
bank.

iii
Contents

1. YES bank History ....................................................................................................................... 2

1.1 An Eventful Beginning ................................................................................................................... 2
1.2 Building Momentum of Spectacular Growth. ............................................................................... 2
1.3 The Crisis and its Aftermath .......................................................................................................... 3
2. Problem statement ................................................................................................................... 5
3. RBI moratorium ........................................................................................................................ 8
4. Reconstruction Scheme ............................................................................................................. 8
5. Annexure ................................................................................................................................ 10
5.1 Fundamental Financial Analysis ................................................................................................ 10
References ...................................................................................................................................... 12

1
1. YES Bank History

1.1 An Eventful Beginning

For Rana Kapoor, it was an audacious dream to build a professional’s bank in India from
scratch. Armed with an economics degree from Delhi University and an MBA from New
Jersey’s Rutgers University, Rana initially interned in Citibank New York's IT department.
Inspired by the glitz and glamour of new age banking, he really hoped to build something
similar in India (Dave, A. 2017). After working in Bank of America for 15 years followed
by two years with ANZ Grindlay's investment bank, in 1998, he started his entrepreneurial
journey. He roped in in colleagues Ashok Kapur and Harkirat Singh to help set up Dutch
multinational banking firm Rabo Bank's Indian operations. (Karnik, M. 2017 Karnik, M. 2017
Karnik, M. 2017 Karnik, M. 2017
Karnik, M. 2017 Karnik, M. 2017 Karnik, M. 2017 Karnik, M. 2017 Karnik, M. 2017
In 2003, the three partners applied for a license from banking regulator Reserve Bank of
India (RBI) to start a bank. They set up Yes Bank with a capital of Rs. 200 crores.
(Dubey, R. 2015

In 2008, Ashok Kapur's life came to a tragic end when he was killed in terrorists attack at
Trident-Oberoi hotel complex in Mumbai. Since then, Rana Kapoor became the only one
remaining among the founder team to hold a leadership position at the bank.

Under Rana’s leadership, Yes Bank took small steps in building its corporate lending
segment and focused on sectors like real estate, pharmaceuticals, renewable energy, electrical
and media. While Rana followed an aggressive route to expand the loans division. He used a
simple strategy: provide big loans to those who asked for it but make borrowers pay a very
high fee upfront in the range of 2 to 10 percent of the sanctioned amount. He also charged
interest rates of up to 16 percent per annum, around 3 percent higher than the rates of
competitors (Gopalan, K. 2019 ). So Rana Kapoor was playing a very high risked game.

1.2 Building Momentum of Spectacular Growth.

In 2010, RBI (Reserve Bank of India) announced the deregulation of savings account
deposit rates, removing the 4 percent cap on savings account rate. In December 2011 Yes
Bank announced a competitive 7 percent interest rate for savings accounts deposits in order
to attract more customers. The move helped - Yes Bank’s CASA (current account savings
account) ratio grew from 10.3 percent in March 2011 to 15 percent by March 2012 and to
36.5 percent in March 2018 (Kumar, P. 2018 ).

A year later, Rana announced a vision called Yes Bank Version 2.0- an ambitious goal of
creating 900 branches (from 150), 2,000 ATMs (from 94), and 12,750 employees (from 3,030)
with a deposit base of Rs. 125,000 crores (from Rs. 26,798 crores). This bold public
statement was targeted at all the stakeholders of Yes Bank, making top management
responsible for the deliverables (Mahanta, V. 2013).

2
1.3 The Crisis and its Aftermath

While the bank grew as planned, internal troubles were brewing at the promoter level.
Since Ashok’s promoter shareholding had been passed on to his family after his death, his
wife Madhu initially proposed appointing their daughter Shagun Gogia on the bank’s board.
Rana opposed this appointment citing Gogia’s lack of experience. In 2013, Ashok's family
raised an issue with the bank about the rights which were jointly assigned to the Indian
Partners, namely Rana Kapoor and Ashok Kapur, as described in the bank’s Articles of
Association. The dispute went up to the Bombay High Court, which in 2015 issued an order
that Ashok’s family could not be transformed into some sort of non-promoter capacity due
to a partner’s demise, thereby upholding the view that they enjoyed joint rights that
belonged to the original partners. The order also discussed the option of both promoters
bringing down their shareholding to below 10 percent considering the bank’s long-term
interests. Rana was quick to state that he will never sell his shares (Dugal, I. 2018

By the end of September 2018, the RBI refused to approve an additional three-year term for
Rana Kapoor as the chief executive, citing severe corporate governance issues. Deutsche Bank
AG’s former India CEO Ravneet Gill was brought in to replace Rana (Bloomberg View).
As soon as Ravneet stepped in to take the role of the CEO, he initiated an exercise known as
kitchen-sinking. This is where a new chief executive officer displays all company related
bad news upfront in order to gain flexibility over decisions that he makes in the future.
Instead of drawing comfort and hope from the clean-up exercise initiated by him, investors
started really worrying about the bank’s covered up exposure to sectors and groups that
were going through troubles.

Around a sixth of the bank's loan book were linked to financial and real-estate firms,
coincidentally the two businesses facing the biggest funding squeezes in India. This
included loans of $1.85 billion (around Rs. 11,100 crores) given to Anil Ambani’s telecom
company that was undergoing bankruptcy and a $470 million exposure (around Rs. 2820
crores) to Subhash Chandra Zee Entertainment Enterprises (Mukherjee, A. 2019 ), another
company facing financial difficulties. Yes Bank also reportedly had advanced loans of around

3
Rs.500 crores using a web of small plantation companies to fund 12,000 acres of coffee
estates owned by V. G. Siddhartha, founder of the Cafe Coffee Day chain who passed away
suddenly (Shukla, S. 2019 ). The grapevine was that the bank’s exposure to troubled assets
were almost at Rs 26,000 crore, an amount Rs 17,000 crore that was significantly less than
the declared by the bank. The really disturbing part was that if the recovery gets delayed,
the entire net worth of the bank being around Rs 26,904 crore, could get wiped away
(Dey, M. 2019 ).

Source: https://www.moneycontrol.com/india/stockpricequote/banks-private-
sector/yesbank/YB, (Accessed 10-11-2019)

Share prices of the bank also quickly reflected the broad events happening in the bank (see
Figure 1). In September 2018, investors saw a 40 per cent erosion in their wealth in one
single week-the bank’s share price sank from Rs. 318.50 to Rs. 184.45. There were two
reasons attributed to this wipe-out.

On one hand, the bank had declared that it had not indulged in any type of window dressing
of its corporate accounts to conceal its non-performing assets (NPAs) and at the same time,
there were other reports floating around that Madhu Kapur, wife of late Yes Bank co-
founder Ashok Kapur had sold around 0.04 per cent of her stake in the bank A year later, the
2019 ‘kitchen sinking’ process also made YES Bank shares to drop 30 percent, making
investors of the bank lose another estimated Rs. 16,500 crores (Mudgill, A. 2018 ).

By May 2019, Yes Bank had reported stressed assets worth Rs. 10,000 crores, mainly from
exposure to real estate, entertainment and infrastructure sector-based corporate groups. The
bank's profits came down from Rs. 4,224 crores in 2017-18 to Rs. 1,720 crores in 2018-19.
In a couple of months, the bank also got the title of the world’s worst-performing lender in
2019 (Ghosh, S. 2019 ).

In November 2019, Rana Kapoor sold away almost all his shares of the YES bank. Their total
value was 142 crores. This is despite the fact that last year he had tweeted in September 2018
and said – “Diamonds are forever, y promoter shares of YES bank are invaluable to
me”, That is, he considered the shares of YES bank as valuable as diamonds and he had
written in his tweet that he would pass on these shares to his three daughters and their
children and I would write in my will and instruct them to never sell these shares. So you can
imagine how terrible the situation must be that while he was promising to never sell the
shares because they were so valuable and next he sold them one year later.

On 5th March, 2020, the RBI took up the entire matter into its own hands and under Sub-
section (1) of Section 45 of the Banking Regulation Act, 1949, the Government of India has
made an Order of Moratorium in respect of Yes Bank Ltd. under Sub-section (2) of the said

4
 Section for the period from 5th day of March 2020 and up to and inclusive of the 3rd day of
April 2020 declared a moratorium and placed a restriction that all those who have deposited
their money in this bank cannot withdraw more than 50,000 rupees per month, except in
emergency cases After this, the stock of this bank fell and so did the Sensex. News came
around that SBI might buy this bank. Then, the stock of SBI fell, too and on 8th of March,
2020 ED (Enforcement Directorate's) arrested Rana Kapoor under allegations of fraud and
money laundering.

2. Problem Statement

a) Loan spree

In the last five years, Yes Bank went on a loaning spree.

Its total advances rose by 334% between FY14 and
FY19, the highest rise among comparable banks in the
period.

b) Bad loans multiply

Many borrowers started defaulting. The bank’s Gross NPA% (loans overdue for >90 days)
zoomed to 7.39% as of Sept. ‘19, the highest among comparable banks.

5
c) Low provisions

While bad loans piled up, Yes Bank did not make
enough provisions in its profits. Its Provision Coverage
Ratio in FY19 was 43.1%, the lowest among
comparable banks. RBI says a PCR of >70% is
desirable.

d) Confidence drop

Amidst the loan mess, customers withdrew large amounts, resulting in the credit-deposit ratio
of Yes Bank crossing 100% (it lent more than what it received) in FY18, 19.

6
e) Poor profitability

The loan spree & high NPA

meant poor profitability,
gauged by Yes Bank’s
sinking Return on Assets
(RoA) (RoA = net income/
total assets). Graph shows
year-on-year change in
RoA. For instance, Yes
Bank's RoA in FY19 was
0.52, in FY18 it was 1.78.
Thus the y-o-y change of -
1.26 in FY19 is plotted in
the graph

f) Investors sensed trouble

Though the bank’s troubles came as a

shock to many, investors sensed it early.
The bank’s stock price fell steadily in the
past year

(Problem statements).

7
3. RBI moratorium
All the above factors led the RBI to conclude that there was no “credible revival plan” from
the end of YES bank and so “in the public interest and the interest of the bank’s depositors”
there was “no alternative” but to place the bank under a moratorium. RBI took over from
YES bank board for 30 days. The central bank has appointed deputy managing director and
chief finance officer of State Bank of India, Prashant Kumar, as an administrator of the bank.
The Central Bank of India then imposed limits on withdrawals to protect depositors.

4. Reconstruction Scheme

Finance Minister Nirmala Sitharaman told reporters that State Bank of India (SBI) will invest
49% of equity in Yes Bank, and other investors were also being invited.

SBI will have a lock-in of three years for up to only 26% of the 49% of its stake in Yes Bank,
while for the rest of the investors; the three-year lock-in will be applicable for 75% of their
investment. Other participants in the plan include HDFC Ltd, ICICI Bank, Axis Bank, Kotak
Mahindra Bank, RK Damani, Rakesh Jhunjhunwala and the Azim Premji Trust. SBI and the
other investors will infuse a total ₹12,000 crore. HDFC and ICICI Bank said they will invest
₹1,000 crore each, while Axis Bank said it will put in ₹600 crore. The plan will involve 12-13
billion new shares being issued, said the people cited above. While SBI’s stake will be 45%,
ICICI Bank and HDFC will own about 6% each and Axis Bank 3-4%.

The SBI investment in Yes Bank is the Reconstruction Scheme the capital-thirsty private
bank can ask for. The presence of a credible name like SBI is very important for a resolution.
If the deal goes as per plan, depositors of YES Bank are in safe hands and have nothing to
worry about. The survival of YES Bank is critical to preventing a contagion in the banking
industry. Rajnish Kumar, SBI chairman sounded confident of implementing the restructuring
proposal for YES Bank before the 30-day RBI imposed moratorium period ends. Once YES
Bank was out of moratorium it would be run by a professional team.

Main Stake Holders

Depositors in YES Bank

Investors in YES Bank (shareholders)
Investors in SBI (shareholders)

The primary objective of RBI or Government in a crisis like that of YES Bank is to
safeguard the hard-earned money of depositors. RBI assured depositors of the bank that their
interests will be fully protected and there is no need to panic. The next priority is to safeguard
the interest of investors (shareholders), however, this does not seem to be easy. YES Bank’s
shareholders would surely be the biggest losers. Going by the experience of banks placed
under moratorium earlier by RBI, shareholders are unlikely to be compensated. Shares of Yes
Bank, which traded at 404 rupees at its peak in August 2019, fell to a record low of 5.65
rupees on March 2020, with the stock plunging nearly 85%.

8
 Most of the shareholders of YES bank will be happy to see a credible investor like SBI
investing heavily in YES Bank. However, the shareholders of SBI are worried about the top
public sector bank’s investment in a loss-making private bank, which may not give any
immediate returns.

The plan is to keep YES Bank and SBI separate, leaving scope for the state-run lender to exit
the investment when YES bank turns profitable. Though the new board of Yes Bank will be
constituted with two nominees from SBI to build the trust of investors and depositors, SBI
management would not be involved in the day-to-day management.

SBI will be taking over the loan book of YES Bank, recover the loans, and return the
depositors money. The new draft scheme proposes full repayment of all deposits, dilution of
equity, and write-off of Rs 10,800 crore of additional tier one (AT-1) bonds.

9
5. Annexure
5.1 Fundamental Financial Analysis

The big blow that happened to YES Bank started in 2015 when the Indian Banking regulator
RBI demanded the Asset Quality Review (AQR) of various banks in India. Bank’s major
business being to give loans and earn interest income, but when a borrower fails to repay the
loan this category of loan is known as a bad loan or an NPA (Non-Performing Asset). It is the
banks responsibility to report how many loans have become NPAs i.e. how many loans have
become bad/irrecoverable. The difference between the AQR and the banks’ reported NPA is
known as loan divergence. (For example: 200 crores were reported by the bank as NPA and
RBI’s AQR audit shows the banks’ NPA at 350 crores, here the loan divergence is 150 crores
pointing out discrepancies in the bank’s report).

In March 2016, the total divergence was shown to be at ₹ 4,176 crores. In the very next year a
divergence of ₹ 6,355 crores came into light, a 52% increase (YES Bank Annual Report).

- The Net NPA in % To Total Advances have more than doubled from 0.64% in FY
17-18 to 1.86% in FY 18-19.
- Gross NPAs in % To Total Advances have almost tripled from 1.28% in FY 17-18
to 3.22% in FY18-19.
Such situation of NPAs in % to the Advances increasing drastically especially in a gap of
one financial year posed a huge risk in the stability of any bank. It simply meant that by 2019
the Bank was losing out in its capability to realize (into cash) any of their bad debts.

10
The above Operating Analysis could also be concluded that the bank was not operating
smoothly and were in for big disasters in the very near future. Profit being a huge negative
while operating expenses increasing by over 20% were all indicators of an imminent collapse.

11
 References

1. Dave, A. 2017 – How Yes Bank’s Rana Kapoor went from being an intern at Citibank to
India’s newest billionaire, 2017. [Available online] https://scroll.in/article/827466/how-yes-
banks-rana-kapoor-went-from-being-an-intern-at-citibank-to-indias-newest-billionaie; [Accessed
on May 2020]

2. Karnik, M. 2017 – Once an intern at Citibank, Yes Bank’s Rana Kapoor is now India’s newest
banking billionaire, 2017. [Available online] https://qz.com/india/891891/once-an-intern-at-
citibank-yes-banks-rana-kapoor-is-now-indias-newest-banking-billionaire/; [Accessed on May
2020]

3. Dubey, R. 2015 – The story of Yes Bank, more than a soap opera, 2015. [Available online]
https://www.sptulsian.com/f/cf/the-story-of-yes-bank---more-than-a-soap-opera ; [Accessed on
May 2020]

4. Gopalan, K. 2019 – Rana’s ‘Yes’ Bank, 2019. [Available online]

https://www.outlookbusiness.com/the-big-story/lead-story/what-went-wrong-at-rana-kapoors-yes-
bank-5446; [Accessed on May 2020]

5. Kumar, P. 2018 – Yes Bank- When the pillars break down, 2018. [Available online]
https://finception.in/stocks/yesbank/; [Accessed on May 2020]

6. Patnaik, R. 2011 – Yes Bank: Differentiation in Over–Competitive Market. IUP Journal of

Business Strategy. Vol. 8, Issue 2, p61-73; [Accessed on May 2020]

7. Mahanta, V. 2013 – Yes Bank version 2.0: Will team Rana Kapoor meet the big hairy
audacious goal?, 2013 [Available online] https://economictimes.indiatimes.com/yes-bank-
version-2-0-will-team-rana-kapoor-meet-the-big-hairy-audacious-goal/articleshow/20351643.cms ;
[Accessed on May 2020]

8. Dugal, I. 2018 – Life Comes Full Circle For Rana Kapoor. [Available online]
https://www.bloombergquint.com/opinion/life-comes-full-circle-for-rana-kapoor; [Accessed on
May 2020]

9. Bloomberg View: Yes, bank on things being worse than they look, 2019. [Available online]
https://economictimes.indiatimes.com/industry/banking/finance/banking/view-yes-bank-on-things-
being-worse-than-they-look/articleshow/69352130.cms; [Accessed on May 2020]

10. Mukherjee, A. 2019 – Yes, bank on things being worse than they look, 2019. [Available
online] https://www.livemint.com/opinion/columns/opinion-yes-bank-on-things-being-worse-than-
they-look-1558024469068.html; [Accessed on May 2020]

11. Shukla, S. 2019 – A ‘priority sector’ problem brewing for YES Bank? [Available online]
https://economictimes.indiatimes.com/markets/stocks/news/a-priority-sector-problem-brewing-
for-yes-bank/articleshow/70885248.cms; [Accessed on May 2020]

12
12. Dey, M. 2019 – Yes Bank -- A falling knife, but should you catch it? [Available online]
https://www.moneycontrol.com/news/business/moneycontrol-research/yes-bank-a-falling-knife-
but-should-you-catch-it-4095431.html; [Accessed on May 2020]

13. The Economic Times. YES Bank stock sinks 40% in a week; brokerages lower view.
[Available online] https://economictimes.indiatimes.com/markets/stocks/news/yes-bank-stock-
sinks-40-in-a-week-brokerages-lower-view/articleshow/65993309.cms; [Accessed on May 2020]

14. Mudgill, A. 2018 – New CEO’s kitchen sinking spooks YES Bank; has stock found a
bottom? [Available online] https://economictimes.indiatimes.com/markets/stocks/news/new-
ceos-kitchen-sinking-spooks-yes-bank-has-stock-found-a-bottom/articleshow/69109420.cms;
[Accessed on May 2020]

15. Ghosh, S. 2019 – YES Bank: World's worst-performing bank stock posts globe's biggest
surge, 2019. [Available online] https://www.business-standard.com/article/finance/yes-bank-
world-s-worst-performing-bank-stock-posts-globe-s-biggest-surge-119111100292_1.html;
[Accessed on May 2020]

16. Problem statements. 2020 – Data | The Yes Bank crisis explained in six charts, 2020.
[Available online] https://www.thehindu.com/data/data-the-yes-bank-crisis-explained-in-six-
charts/article31017007.ece; [Accessed on May 2020]

17. YES Bank Annual Report 2018 – 2019 [Available online]

https://www.yesbank.in/pdf/annualreport_2018_19_pdf; [Accessed on May 2020]

13