What Led to the Downfall of the Yes Bank? An Analysis

The Yes bank- once the darling of many investors and borrowers is in neck-deep trouble now. Reserve Bank of India has rightly imposed a moratorium under Sec 45 of the Banking Regulation Act 1949 and capped withdrawals @ Rs 50,000/-. In some extreme exigency cases, the higher withdrawals will be allowed. The depositors are protected up to Rs500,000/- under Deposit Insurance- DICGC as per the revised guidelines of the Central Govt. The Board of Directors is ripped off their powers. The SBI and LIC may bail out the capital-starved Bank if the Govt gives a green signal.

 

Let us see the history of these private-sector banks. This bank was promoted by Mr Rana Kapoor and  Ashok Kapur in 2004 after getting a license from RBI under the 2nd schedule of the RBI Act 1934. The paradox is that this Bank used to parade that their NPAs were less than 1 % and the sudden turn of events attributing high NPAs  makes everyone to ponder over as to how this could happen all of a sudden. While Ashok- a promoter and CEO lost his life in a terror attack in 2008, Rana was left alone to manage the affairs of the Bank. No doubt the bank grew well under the leadership of Rana with over Rs 3 L Cr. assets over a period of time.

This problem started perhaps due to the fact that MD-Rana started lending to all companies that approached this bank for a loan and none got a reply-‘no’. even when other banks have rejected the loan proposals of many, of course with a high rate of interest. While profits, deposits (offered high rates) and loan portfolio went up and up for some time, the big loans such as Anil Ambani’s  reliance group,  ILFWS, DHFL, Jet Airways , Essar Shipping, Cox & Kings, Coffee Day and many more defaulted in payment of loans and interest which to a great extent crippled the operations of YES BANK.

 

While the Bank’s NPAs were over Rs 4900 crores, it reported it to be under Rs 749 Cr. While Ran’s tenure as MD was renewed by RBI in 2018 for 3 years, RBI on seeing his reckless lending cut it short in Jan 2019 itself. Series of Fines and penalties, mounting NPAs, Rating agencies rushed to lower the rating…all led to this great calamity. Rana also sold his holding and it got reduced to 1 %.. In March 2019 Ranveet Gill took charge as MD. Still Bank made huge loss of Rs 1506 cr. Now the Board supers3eded. SBI’s CFO Prasant Kumar appointed as the Administrator. Unless the SBI and LIC take a positive stake and role in resurrecting this ailing bank, the future is quite uncertain.  Depositors may be watchful and so also investors like Equity shareholders!

 

 

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