A Crispy Case Study of Yes Bank..

2. YES BANK: INTRODUCTION
• It was incorporated in
November 2003 and started
its operation from August
2004 .
• Mission; to establish a high-
quality, customer-centric,
service-driven, private Indian
Bank catering to the ‘Future
Businesses of India’.

3. • 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).

4. YES BANK: PRODUCTION, SERVICES,
AND OPERATIONS
• YES BANK is one of the leading banks of India providing a
complete range of customized banking solutions.
• YES 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.

5. 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
• Loans
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).

6. YES BANK: FINANCIAL HIGHLIGHTS
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
CASA Ratio 33.1% 36.5%
Shareholders’ Funds Rs. 26,904 crore Rs. 25,758 crore
Capital Adequacy Fund 16.5% 18.4%
Net NPA 1.86% 0.64%
Gross NPA 3.22% 1.28%
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%
Financial Indicators (Annual Reports, 2019)

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.

8. What are the reasons behind the Yes Bank
crisis?
• Governance:
• The YES bank faced several governance-related issues that led
to its decline.
• On January this year, Uttam Prakash Agarwal, one of the
independent directors, had quit citing the deterioration of
corporate governance standards and compliance failure at the
lender.
• In 2018-19, the bank under-reported NPAs, prompting the RBI
to dispatch R Gandhi, one of its former deputy governors to the
board of the bank.

9. THE REAL PROBLEM
Independent director, BOARD AND MD &
CEO
• Listed companies are run by the Boards.
• There will be a CEO and Managing Director, who runs the
company but is answerable to the Board.
• The Board of Directors will also have Independent Directors, it
is a statutory requirement.
• Moreover, having independent directors adds prestige to the
company and the promoter.

10. WHAT IS THE ROLE OF INDEPENDENT DIRECTORS?
• They are expected to perform their function of questioning the
decisions of the CEO, upholding probity and protecting the
minority shareholders’ rights.
• Whether the companies are running the affairs to satisfy various
statutes, is also looked at by the independent directors.

11. BUT, WHAT IS HAPPENING IN REALITY?
• Usually, retired top-level bureaucrats, former public service
heads, former diplomats and former Generals are given such
positions.
• This also opens, for the company and the promoter, doors to
approach the Government, where most licenses and files are
still cleared depending on, who you know in the corridors of
power.
• Whenever these independent directors raise concerns on any
impropriety, they are normally shown the door.

12. 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)

14. • Since 2013, Madhu Kapur had been fighting a legal battle and claiming that post
her husband Ashok Kapur’s demise, daughter Shagun Gogia should also have
been given a seat on the board.
• At that point in time, Rana Kapoor, who was then heading the bank, as well as
members of the board had the opinion that Gogia did not have the necessary
experience.
• In 2015, the Bombay High Court gave decision in favor of the Kapur family and
said that the promoters must nominate three directors on the board, jointly.
• After fighting a long legal battle, Shagun is finally a part of the bank’s board.
• Shagun Gogia has received a joint nomination from Rana Kapoor, Co-Founder and
former Managing Director and Chief Executive Officer, YES Bank and his mother
Madhu Kapur, who inherited the promoter holding from her late husband Ashok
Kapur.

15. 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.

16. • 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)

17. 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
Year Amount Under-Reported
2018 Rs. 3,277 crore
2017 Rs. 6,355 crore
2016 Rs. 4,176.7 crore

18. 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.

19. • 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).

20. 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.

22. 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%
Source: (Annual Reports, 2019)

23. • 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. 13.38 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.

25. What are the consequences of YES Bank
crisis?
The YES Bank crisis may result in the following situations:
• The depositors may move towards public sector banks, which
are currently more hesitant towards providing loans.
• The crisis may lead to slowing down of deposit growth for select
private banks, leading to lower credit growth.
• Private sector banks will be forced to offer higher deposit rates,
which in turn may increase the credit rate.

26. • Both private and public banks will not be able to provide for the
credit requirements, which is vital to realise India’s objective of
becoming a $5 trillion economy by 2024-25.
• The YES Bank crisis may harm the Indian economy, which is
drastically slowing down.

27. 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:

28. • 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 BANK, 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

30. • 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)

31. • 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.

32. What can be the way forward?
Reforming RBI:
• The RBI is in charge of too many responsibilities.
• The government can reform the RBI so that it is not burdened
by numerous critical responsibilities related to the country’s
finance.
• In this context, the Securities and Exchange Board of
India (SEBI) can be made in charge of the securities regulation.
• The debt management can be brought under an independent
debt management agency.

33. Deposit insurance:
• In India, the depositors do not have much security if a bank
fails.
• The Budget 2020 only covers deposits up to Rs.5 lakh via
deposit insurance.
• The deposit insurance should be increased further to regain the
depositors’ trust in the banking system.
• In India, the deposit insurance is provided by the Deposit
Insurance and Credit Guarantee Corporation (DICGC), which is
the subordinate to the RBI.
• The DICGC collects a premium of 0.05% of the entire
outstanding deposit from banks and not from the depositors.

34. Conclusion
• 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.

35. THANK YOU