It is normally said that stock markets are too volatile and speculative and may not tell the real economic story. However, when it comes to individual stocks, market prices have not only been precise but they have also been extremely perceptive and predictive. In the case of Yes Bank
, the price chart below best captures the rise and fall of the bank. At one point, it was touted as the next big thing in banking. However, once the RBI started looking deeper into the books of Yes Bank and refused to accept Rana Kapoor’s continuation as the CEO of the bank, things just went downhill.
Broadly, the Yes Bank Saga can be broken up into 3 phases; the consolidation phase between 2005 and 2009, the growth phase between 2009 and 2017 and finally the fall between 2017 and 2020. Ironically, the stock price of the bank touched a life-time high in the middle of 2018 before the fall began. But first its early days!
Blending aggression and conservatism at Yes Bank (2004 to 2009)
The bank may have been formed in 2004 but the association between the promoters goes back much longer. Rana Kapoor, Ashok Kapur and Harkirat Singh had first associated in 1998 to float Rabo Finance with a 25% stake, with Rabobank holding the balance 75%. However, by 2003 Rana Kapoor and Ashok Kapur had sold their stake in Rabo Finance to float their own bank. That is when Yes Bank got the license and started operations in 2004. The first phase of Yes Bank was a combination of Rana Kapoor’s aggression and Ashok Kapur’s conservatism.
That worked perfectly well till the time Ashok Kapur was tragically killed in the Taj shootout on November 26, 2008. Before we move to the next phase, it must be remembered that the Yes Bank IPO in 2005 was marked by a major controversy involving the multiple demat account scam. While Yes Bank was never drawn into the demat scam, it is still not certain if the bank had deliberately looked the other way to encourage demand for its IPO.
Saying Yes to aggressive banking (2009 to 2017)
This was the period when Yes Bank saw a meteoric growth in its business to emerge as the fourth largest private sector bank in India. According to industry sources, the quintessential Yes Bank aggression also meant that even promoters shunned by other banks managed to get a warm welcome here. Of course, this came at a cost in the sense that each loan used to come with a hefty fee payable to the bank. Over time, Yes Bank had managed to make close to Rs300cr each year from such fee income.
This period also saw the first signs of trouble with the management feud between Rana Kapoor and Madhu Kapur (wife of Ashok Kapur) coming into the open. Madhu Kapur was increasingly getting the feeling that despite the family’s 9.3% stake in Yes Bank, they were not being consulted. In 2015, Madhu Kapur had filed a case in court to annul the reappointment of two of its directors, since it was done without consulting her. This feud, in a way, was the beginning of the problems that was to beset Yes Bank a little over a year later. It was also in 2016 that the RBI had first pointed to serious divergences between the gross NPAs reported by Yes Bank and the actual gross NPAs as approved by RBI. This divergence would eventually go up to $1 billion, triggering the crisis.
RBI unhappy with asset quality and with Kapoor (2017 to 2019)
In mid-2017, RBI forced Yes Bank to disclose the huge divergence in bad assets. The divergence in non-performing loans which was at $630 million (Rs4500cr) in mid-2017 had blown up to $1 billion (Rs7300cr) by mid 2018. That was also the time the board had recommended continuing with Rana Kapoor as the CEO of Yes Bank for a period of 3 years till 2021. That was the day, Yes bank touched a life-time of Rs393; a level it would never see again.
Unfortunately for the Yes Bank board and Rana Kapoor, RBI rejected the extension and asked Kapoor to leave the CEO chair before February 2019. In a way, Yes Bank was synonymous with the style, philosophy and deal making acumen of Rana Kapoor and that left the stock markets faltering for support. It was around this time that the real magnitude of the NPA problem started to blow up in the face.
With Ravneet Gill (formerly Deutsche Bank) took over as the CEO, it was clear that Yes Bank required a clean-up of its Augean Stables. It soon became obvious that Yes Bank had some incredibly huge exposures to high risk stocks. A multibillion dollar exposure to companies like the Reliance ADAG group, IL&FS, Dewan Housing, McLeod Russell and Cox & Kings meant that the company started missing estimates each quarter. That was, in a way, the beginning of the implosion.
Come 2020 – Capital raising remained elusive
By late 2019, the situation had become desperate. Yes Bank desperately needed to raise close to $2 billion as its Tier 1 capital had fallen close to 8%. However, most investors who committed, later backed out after due diligence. Meanwhile, the RBI had gotten worried that a run on deposits had already begun at Yes Bank. The larger corporate and HNI deposits were looking for exits. After consistent assurances by the CEO, Ravneet Gill, the RBI was convinced by March 05th
2020 that the only way to save the bank and prevent a systemic risk was to hand it over to an administrator.
The future of the bank is not very clear, but RBI would be keen to protect the interests of depositors. One will have to await the report of the administrator in early April to get the real picture.