In a society full with desires, one cliche still holds true: overambitious or enthusiastic aspirations can often lead to avarice.
This phrase may sound cliché, but it is very true in today’s world, especially in the case of Yes Bank, which, despite reporting a 29 percent increase in standalone net profit to Rs 1,179.44 crore for the quarter ended March 31, 2018, landed in a situation where it reported a surprise loss of Rs 1,506.60 crore for the quarter ended March 31, 2019.
Yes Bank’s Problems
However, the problem began in 2017 when Yes Bank’s loan book increased by 80% between March 31, 2017, and March 31, 2019, when the economy was down, credit demand was unusually low, and there were no signs of a pickup in private investment, and it was during this time that Yes Bank’s loan book increased from Rs 1,32,000 crore in FY 2017 to Rs 2,41,000 crore in FY 2019. That is a growth of Rs 1,09,000 crore, or 80 percent, in only two years, when most banks were finding it tough to lend Yes Bank virtually quadrupled its loan book in only two years and it is because of this fact despite the fact there was a common saying in the lending industry that even if no one lends, Mr. Kapoor will.
In the Indian banking and financial system, YES BANK is one of the main private sector lenders. It was founded in November 2003 and began operations in August 2004 with the goal of creating a high-quality, customer-centric, service-driven private Indian bank that would cater to India’s “Future Businesses.” and it was consequence of the professional entrepreneurship of its founders Rana Kapoor and Ashok Kapur, as well as their qualified senior management staff that Yes Bank was named the Fastest Growing Bank in the Year 2011.
Too Good To Be True
Another major reason behind Yes Bank’s marvellous growth is that many firms rely on their funding from private banks and Yes Bank has shown to be their go-to bank. For some of them, he was the sole banking partner for UPIs such as swiggy, phonepe, flipkart, redbus, etc. They have been trading with numerous clients for each transaction. In view of the bank’s expansion, individuals have begun depositing ever more, fundamentally, the value for the bank has grown to 2 lakh crores. Businesses and rating agencies YES bank reached their pinnacle and maximum confidence.
Despite this, today yes bank has been synonymous with dishonesty and infidelity, and this is because of the NPA Puzzle, which was formed by top management, particularly Mr. Rana Kapoor, who was formerly recognised for the bank’s foundation and rapid expansion.
NPA stands for non-performing assets, which are loans or advances that have defaulted or are in arrears. This occurs because of late or missing principal or interest payments, and this happens the debtor is unable to satisfy his commitments, and then lender deems the loan arrangement to be breached.
The reason behind yes bank falling into NPA riddle is because it has been aggressively extending its corporate loan lending to troubled corporates since its establishment which includes Anil Ambani Group, Essel, DHFL, IL&FS, Vodafone, CG Power, Cox & Kings, Jet Airways, and others that are either in financial distress or have just been bailed out. As a result, when RBI conducted an assessment management survey on Yes Bank’s NPA value, there was a significant difference between what they originally reported and what RBI found. Yes Bank originally reported gross NPA of Rs. 748.98 crore, but RBI found gross NPA to be Rs. 4925.68 crore, a 557 percent increase.
Other elements which lead Yes bank into the legal trouble includes:-
Governance Issue – Since the death of Mr. Ashok Kapur, there has been a squabble in the top management of YES BANK, with Rana Kapoor making all of the decisions. Other board members have questioned Mr. Kapoor’s aggressive lending strategy on several occasions, but as the bank’s largest shareholder, he has always attempted to dominate. As a result, we might conclude that the administration of the Yes Bank is incompetent and callous.
NBFC Crisis – The collapse of Infrastructure Leasing & Financial Services (IL&FS) sparked the crisis in India’s shadow banking sector, which later spread to Dewan Housing Finance Limited (DHFL). As of September 2019, YES Bank’s overall exposure to IL&FS and DHFL was 11.5 percent. In April 2019, the bank categorised around Rs 10,000 crore of its exposures as probable non-performing loans over the following 12 months, accounting for 4.1 percent of its total loans on the watch list.
All of this resulted in a vicious cycle in which the bank’s financial health deteriorated, discouraging many depositors from retaining cash in the bank for a longer period of time, and the bank saw a constant outflow of deposits, burdening its balance sheet and adding to its troubles.
Now, before this ruckus becomes a calamity for the whole banking industry, the RBI steps in and does the following. –
- The RBI has taken over the management of YES Bank – As a result of the bank’s issues, which are linked to alleged mismanagement by its co-founder and previous chief executive Rana Kapoor, whose tenure was cut short by the RBI owing to governance failures, Ravneet Gill, the MD for Deutsche Bank’s India business, has taken over leadership. However, the bank recorded a quarterly deficit shortly after his appointment, prompting the RBI to suspend the institution’s board of directors for 30 days and appoint Prashant Kumar, the former CFO of State Bank of India, as its administrator.
2. The RBI put a moratorium on the lender – on March 5, the RBI placed a moratorium on the private lender, limiting withdrawals to Rs 50,000 per depositor until April 3, due to the institution’s poor financial condition as a result of bad loans. When the news of Yes Bank’s legal troubles hit the press, the general population began withdrawing large sums of money, fearful that their money would be lost at the bank. This measure must be taken since it has 30,000 ready cash to satisfy any probable rise in depositor withdrawals.
But this isn’t enough; the situation can only be stabilised with the aid of a Reconstruction plan, which is exactly what SBI and other private banks did while it was counting its last breaths in ICU.
Following this, yes bank begins its path to regain its footing, which begins with an improvement in the bank’s liquidity coverage ratio (LCR) in recent months. As of June 30 2020, the LCR has increased to 114.1 percent, up from 37.0 percent on March 31, 2019. According to RBI guidelines, a bank must maintain a minimum LCR of 80%.
Total deposits also (including current deposits) grew to Rs 1.17 trillion as of June 30 from Rs 1.05 trillion as of March 31,2020.
In July, the bank successfully obtained Rs 15,000 crore in equity investment through a follow-on public offering (FPO), just four months after completing the restructuring programme, despite difficult market circumstances.
This upward trend continued when YES Bank returned the Reserve Bank’s special liquidity facility (SLF) loan of Rs 50,000 crore on September 8, considerably ahead of schedule. The bank was claimed to be able to do so due of robust consumer liquidity inflows. As part of a restructuring plan to save the faltering bank, the RBI provided such extraordinary financing help.
All of this proved that institutional and retail investors are progressively gaining trust in the bank’s restructuring strategy, actions taken, road map, and competent management under the current leadership.