What Went Wrong With Yes Bank - Issue: 1

The making and unmaking of Yes Bank.

Hey everyone

This is the first issue of Stories by Index Daily. Today we are here the story of Yes Bank. For the last few years, the bank is in the headlines for all the wrong reasons. The debate about Yes Bank is far from over. In this first issue of Stories, we are exploring everything that led to the fall of Yes Bank.

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For almost a decade since its Yes Bank was standing true to its name. The bank was awarded the Best Bank Award in 2008 by Business Today. Yes Bank was also included in the prestigious Sensex30 in December 2017.  Yes Bank was one of the youngest private banks in India, yet among the best performing banks in the country. Then came the downfall and endless arrays of bad news that took the bank for a nosedive.  

The early years

Yes Bank was founded by 3 partners, Harkirat Singh, Ashok Kapur and Rana Kapoor. The team was well experienced in banking and headed some of the top foreign banks in India. These three experienced bankers were supported by Rabo Bank of the Netherlands.  

In 2004, Yes Bank got the license for universal banking from the RBI and started its operation.  The young bank had its first encounter with controversy when one of the co-founders, Harkirat Singh resigned from Yes Bank citing issues with Rana Kapoor. 

Yes Bank was aggressive in business since its beginning. Yes Bank lent aggressively to small businesses and retailers. Despite being very aggressive with its business, Yes Bank had a very robust risk management system put in place. The bank was named the number 1 best performing bank in Indian by KPMG in 2008.  

Rana Kapoor always regarded Kotak Mahindra Bank as the main competitor of yes Bank. Uday Kotak always had the biggest and best businesses in Mumbai as the client of Kotak Mahindra Bank.  Rana Kapoor wanted a piece of these pieces of businesses in Yes Bank.  

The fateful 26/11

Lives changed forever in Mumbai on 26/11. India’s financial capital was gripped by chaos when a group of Pakistan sponsored terrorists rained havoc on the city. Like everyone else, Yes Bank too suffered a huge loss. The co-founder of the bank, Ashok Kapur was among the casualties in the Taj Mahal Hotel. His death changed the bank forever.

After the death of Ashok Kapur on 26/11, Yes Bank became a one-man show. There was no one to check the ethics and business practices of Rana Kapoor. He had free hands to do whatever he wanted in the Yes Bank. Rana Kapoor did exactly that.  

Beginning of the fall

To match with Kotak Mahindra Bank and other private sector banks, Yes Bank started aggressively lending to companies from high-risk sectors like Real Estate, Telecom and airlines. Anil Ambani Group, IL&FS, DHFL, Jet Airways were some of the first big-ticket loan clients of Yes Bank.  

The bet initially paid well. Yes Bank was growing fast and so were its CASA books. Yes Bank was inducted into Sensex in December 2017.  The party was about to turn sour in Yes Bank. The risky bets of Yes Bank were waiting to bite the bank back.  

In the late 2010s, the Indian financial sector started to feel the pressure of rising NPAs. Some banks were caught hiding and underreporting their actual NPA numbers.  Yes Bank was one of these banks. As much as one-fourth of the loan book of the bank turned sour.  

Yes Bank tried to solve the crisis by bringing fresh investors on board. But estranged CEO Rana Kapoor did everything possible to derail the recapitalisation process of the bank.  Rana Kapoor was arrested on money laundering charges. Depositors soon started taking money out of the bank. Nothing was going well for Yes Bank.  

When the situation in the Yes Bank went from bad to worse, RBI stepped in and put the bank in the moratorium on March 5, 2020. RBI brought SBI, HDFC Bank and other top banks of India to rescue Yes Bank. The management of Yes Bank was replaced. Yes Bank was withdrawn from the moratorium on March 18, 2020.   

With new management at the helm of the bank and various measures to clean the books, the road ahead of Yes Bank is yet very dark and lousy.

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