The Yes Bank crisis has caused a massive stir in the banking sector, with the Reserve Bank of India (RBI) superseding its board and the bank being put under a moratarium. The RBI and India’s largest public sector lender, the State Bank Of India (SBI), came together to bail out Yes Bank. In the midst of it all is the bank’s founder, Rana Kapoor, who is being investigated by the Enforcement Directorate for alleged money-laundering.
However, prior to this downfall, till 2018, Kapoor ran Yes Bank with an extravagant aplomb that many say was a part of his own personality. Here’s a look at how the organisation, once the envy of many in the sector, came to where it is now.
The Beginning
Rana Kapoor started his career as a junior banker in Bank of America, Delhi. He worked there for 16 years, until 1996, when he took over as general manager and country head for ANZ Grinlays. In 1998, Kapoor left ANZ to join his brother-in-law Ashok Kapur and entrepreneur Harkirat Kaur to form Rabo India Finance, a Non-Banking Finance Company (NBFC). The three together held 25 percent equity in the new entity while 75 percent was held by Rabobank, headquartered in Netherlands. In 2003, the three sold their equity and got a licence to start a private sector bank. In 2004, Yes Bank took off. Rana held 26 percent stake in the entity, while Ashok held 11 percent. Rabobank had a 20 percent stake.
The bank grew 26 times in size till September 2018, when the first signs of trouble started showing.
Rift Between Kapoor and Kapur
In 2008, Ashok Kapur lost his life during the 26/11 Mumbai Terror Attacks at the Oberoi Trident Hotel. He was survived by his wife Madhu and daughter Shagun.
An ugly ownership transition followed.
Madhu approached Yes Bank to nominate Shagun on the board but her proposal was rejected repeatedly. Subsequently, Madhu’s name was struck off from the list of major shareholders.
In 2013, Madhu and her daughter approached the courts seeking a say in the appointment of directors on the board. At that time, Kapoor’s share in the bank was 14.8 percent while Madhu’s was 12.8 percent. In 2015, she won the case with the Bombay High Court saying that Madhu had the right to jointly appoint directors with Rana.
‘Don’t Invest Big, Don’t Grow Big’
A report by Livemint quotes a senior person in Yes Bank saying that Kapoor believed, “If you don’t invest big, you don’t grow big”. Known as the banker who would “never say no”, he was known to grant loans to anybody, even those corporates who had been rejected by other banks. He was also known for his unique ability to recover every penny from even the most dubious of clients, the list of which includes entities like Kingfisher, Vijay Mallya and Deccan Chronicles.
Kapoor’s excessive investment in publicity and his lavish parties for his employees at his South Mumbai home were also well known in the banking circles.
The Livemint report also states that all decisions of the bank, even the ones in which the board was involved, depended finally on the “whims and fancies” of Kapoor. He was also, quite oddly, very public about his associations with politicians across the spectrum.
In the first 10 years of its existence, Kapoor focused on building Yes Bank’s corporate loan book. From 2004 to 2014, the bank’s loan book went from zero to 55,000 crore rupees, and runaway growth rates of 50 percent began.
The bank would lend to large corporates or their subsidiaries whose promoters were friends of Kapoor’s and collateral in the different forms – like that of the promoter’s personal guarantee – would be signed on. During times of recovery, he would call upon another lender like an NBFC to repay the loan owed by the corporate to the bank so that thaccount does not turn into a Non-Performing Asset (NPA).
Soon, Yes Bank turned into India’s fourth largest private sector lender.
The First Signs Of Trouble
In 2015, a global financial firm called UBS published a report that said that Yes Bank had “large loans in stressed companies”. The report noted that the bank “is most vulnerable to a prolonged weak credit cycle and may not be ready for a sharp increase in the company’s credit costs”.
At the time Kapoor discredited the report calling it “biased”, “motivated” and “unrealistic” and even filed a complaint against UBS.
At this time, Yes Bank had a bad loans ratio at just about two percent.
However, the report prompted the RBI to look into difference between the bank’s own assessment of bad loans and the RBI’s classification. This difference is known as divergence in asset classification.
According to report by the RBI for FY16, Yes Bank under-reported bad loans of over 4,000 crore rupees, enabling it to show an inflated profit of 22 percent.
Subsequently in FY17, the bank under-reported bad loans of Rs 6,355 crores. Investors in the firm soon realised that Kapoor’s way of keeping bad loan figures at a low was to bloat his loan book, so that these figures would stay in single digits.
Kapoor’s Exit & Yes Bank After Him
In 2018, Kapoor’s extension as Managing Director (MD) of Yes Bank for the next three years was being considered by the RBI. On 30 August 2018, the RBI sent the organisation a note which approved Kapoor’s continuing as MD but did not approve his extension.
This is when investors started dumping Yes Bank shares, which at its peak in August 2018 was valued at over Rs 400. Things finally came to a head when the RBI restricted Kapoor’s tenure to 31 January 2018.
“Rana disappeared. He stopped coming to office and went completely incommunicado. He was visibly disturbed. And the bank, which got habituated to work under his leadership, was wondering how to function without Kapoor,” says a bank functionary in the Livemint report.
In the months that followed, a leader-less Yes Bank kept losing its credibility. While those in the finance world started questioning the bank’s financial health, many key executives also quit over concerns of corporate governance lapses.
Finally, in January 2019, former Deutsche Bank Chief Ravneet Gill was named the new CEO of the bank. Meanwhile, Kapoor sold off all his stake at the bank and made a complete exit.
The rest, as they say, is history.
(With inputs from Livemint, Deccan Herald, and Business Today)
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