Courtesy: The Print
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Mumbai:

Capital-starved Yes bank has more or less ceased to exist.

Taking up its operations the Reserve Bank of India has imposed strict restrictions including restrictions on withdrawals. It has also imposed a moratorium on the private lender till April 3, 2020. RBI has capped the withdrawals at 50,000 rupees and a rescue plan is being devised to save the bank. 

In a statement issued on Thursday, the RBI said that it was forced to interfere as the latest plans and efforts devised by Yes bank failed and the lender “was facing regular outflow of liquidity.”

“The financial position of the bank has undergone a steady decline largely due to inability of the bank to raise capital to address potential loan losses,” reads the press release released by RBI. The central bank also suggests that this has resulted in losing the confidence of depositors. 

“The bank has also experienced serious governance issues and practices in recent years which have led to the steady decline of the bank,” the release adds.  The Reserve Bank also appointed Prashant Kumar, former CFO of State Bank of India as the bank administrator. 

This is the second such bank meltdown where the Reserve Bank had to step in. A similar instance had happened with the Punjab and Maharashtra Co-operative bank. 

What went wrong? A complete regulatory failure

What went wrong, Perhaps, everything.

When customers queued up post the crisis, Courtesy: PTI

There were reports regarding the quality deterioration of the bank over the years. The Reserve Bank had earlier imposed fines on the bank and was also pulled up in the past for understating its non-performing assets (NPA).

The bank had understated its NPA’s to the extend of Rs 3277 crores in 2018-19 which prompted RBI to send one of its delegates to the board of the bank. The core capital of the bank was 8.7% at the end of the second quarter of the Financial Year of 2020.

Meanwhile, the reserve bank says that it had been in constant touch with the yes bank board so as to find solutions to the problems they were facing in terms of balance sheet and liquidity. The bank, on the other hand, had always maintained that they are in constant conversations with investors.

Reserve Bank of India (RBI). (File Photo: IANS)

There was always the hope that the ship wouldn’t sink. But the reality was different. Though yes bank was in constant communication with investors, there was no solid proposal from the stakeholders’ side that could save the bank.

“These investors did hold discussions with senior officials of the Reserve Bank but for various reasons eventually did not infuse any capital,” says RBI. The central bank also said that it was hoping for a market-led revival and made all efforts to facilitate such a process, however, it could not materialize. 

The bank was also facing a regular outflow of liquidity. The customers who lost trust in the bank were withdrawing deposits at large.

Over the last three years, the bank also suffered problems in management. RBI  refused to give an extension for Rana Kapoor as chief executive and managing director. He was notorious for  “highly irregular credit management practices, serious deficiencies in governance and a poor compliance culture”.

Rana Kapoor, Courtesy: The Print

Many of those in the managing team also had to step down soon after corruption cases emerged. Thus Yes bank had an almost dysfunctional management time. Issues were expected to be sorted when Ravneet Gill took charge as the management head. But he couldn’t keep up to the pressure.

Yes, to bad loans

Yes bank never said no to loans. Perhaps, that is how the bank grew.

Rana Kapoor the founder was well connected with industrialists. His rivals in the banking industry wickedly call him the ‘lender of the last resort.’

The investor had lent money to business tycoons including Vijay Mallya and Anil Ambani.  IL&FS, Dewan Housing, Jet Airways, Cox & Kings, CG Power, Cafe Coffee Day, Altico- all of them had lent money from the bank.

Thus this bank which started from nothing had grown tremendously to have an asset book over 3 lakh crores, but only to sink eventually. It signed away cheques to nearly every borrower who either went bankrupt or turned a non-performing asset within years.

What does this mean? What is the way forward?

As of now, there is no such suggestion that the bank can’t pay back its depositors. Along with this, RBI has assured that their interest would be protected and there is no reason for panic. RBI also said that it has taken over in order to keep the trust and confidence of the depositors.

As of now, the government has knocked the doors of SBI for help. As per reports, SBI and LIC would acquire half the share at Rs 2 per share. However, analyst suggests to infuse capital in the bank and think that acquiring it may result in a disaster.

A Brief Timeline

The crisis in Yes bank is not new but was reported back in 2018. 

R Gandhi, Courtesy: Banking Frontiers

May 2018: After receiving flak for a number of issues like violation of RBI’s disclosure norms and governance standard, the RBI appoints former deputy governor R Gandhi to the board of YES Bank.

June 12, 2018: The shareholders of Yes bank approve the re-appointment of Rana Kapoor as the Managing Director (MD) and CEO for a period of three years starting from September 1

Aug 30, 2018: RBI also approves the re-appointment of Rana Kapoor as the MD and CEO until further notice.

Sept 19, 2018: RBI cuts short Kapoor’s term till January 31, 2019. 

Sept 21, 2018: After RBI’s announcement, the bank has a loss of Rs 1,951 crores. It’s market value tanks by 30 percent. Meanwhile, market insiders said that RBI’s move exemplified its increasingly assertive approach in tackling the bad debt problem plaguing India’s banking sector.

Sept 25, 2018: The board decided to request RBI to extend Kapoor’s term at least till April 30, 2019. It also informs that it will form a committee to search for the successor of Kapoor. 

Sept 28, 2018: Kapoor, tweets that he remains committed to the interests of the bank and its stakeholders. He also says he will never sell his promoter shares, but pass them on to his daughters.

Oct 5, 2018: Bank names T S Vijayan, former chairman of India’s insurance regulator, and OP Bhatt, former chairman of State Bank of India, as external experts of the search and selection committee.

Oct 11, 2018: Yes Bank appoints advisory firm Korn Ferry to help and find a new CEO.

Oct 17, 2018: RBI refuses the request of Yes bank and asks the board to find a new CEO. Yes bank informs that they aim to complete the recruitment process by mid-December

Oct 25, 2018: Yes Bank’s second-quarter profit misses estimates by a wide berth. 

Oct 26, 2018: Both the panel finalized by the bank and Korn Ferry finalizes and shares a potential candidate pool.  

Nov 12, 2018: Yes bank chairman Ashok Chawla lands in a corruption case.

Ashok Chawla, Copyrights: BFSI

Nov 14, 2018: Ashok Chawla resigns from YES Bank’s board. Vasant Gujarathi also steps down as an independent director.

Nov 15, 2018: OP Bhatt resigns as an external expert of the search and selection committee, due to “potential conflict of interest”.

Nov 19, 2018: Independent director Rentala Chandrashekhar resigns 

Rentala Chandrashekhar, Copyrights: Times of India

Nov 20, 2018: The bank informs that the selection process of the CEO and MD is on track. The resignations reportedly had no impact. Efforts are underway for mutual resolution between Rana Kapoor and Madhu Kapur and her family, the co-promoter. The Yes Bank board has 7 members at this point including Uttam Prakash Agarwal. 

Nov 27, 2018: Rating agency Moody’s downgrades the bank’s rating, saying the resignations from the bank’s board raise concerns over corporate governance. 

Moody’s, Copyrights: The Reuters

 

Nov 28, 2018: Media reports say Kapoor’s investment vehicles’ transactions could be questioned by investors and regulators; Yes Bank denies involvement with the fund management of these investment vehicles.

March 1, 2019: Ravneet Gill takes charge as YES Bank MD and CEO. The bank’s shares gain nearly 3 percent on the back of new appointment.

Ravneet Gill, Copyrights: Yes Bank

 

March 5, 2019: RBI slaps Rs 1 crore fine on Yes Bank for non-compliance in Swift operations.

April 1, 2019: Reports emerge about the bank coming under Sebi probe over potential insider trading violations. Reports also emerge about possible revamp of the top management under the new CEO.

April 26, 2019: YES Bank posts a net loss of Rs 1,506.6 crore in the fourth quarter. The aggregate outstanding funded exposure of bank stands at Rs 2,528 crore at the end of the fiscal year, of which Rs 2,442 crore is classified as NPA.

April 29, 2019: Brokerage Macquarie downgrades the bank’s rating to “underperform” following the fourth-quarter results, saying that loan book clean-up, investments in retail business and pivoting of the business model within corporate segment would keep return ratios subdued for long.

April 30, 2019: Bank shares plunge nearly 30 percent after the quarter results are announced.

May 3, 2019: RBI slaps Rs 11 lakh fine on Yes Bank for violating money transfer norms.

May 9, 2019: Rating agencies India Ratings and Research and ICRA downgrade the bank’s long term rating to negative.

May 15, 2019: Former RBI Deputy Governor R Gandhi appointed additional director on Yes Bank board.

June 3, 2019: Reports emerge that YES Bank is in discussions with private equity firms Advent International and Apax Partners to raise as much as Rs 3,000 crore.

June 11, 2019: RBI slaps Rs 11.25 lakh fine on Yes Bank for violating prepaid payment instrument norms.

Anurag Adlakha, Copyrights: Yes Bank

July 18, 2019: YES Bank shares slump 19 percent after first-quarter profit plunges. The shares fall further after reports emerge about Rana Kapoor’s pledging of the entire stake in the bank.

Aug 10, 2019: Yes Bank appoints Anurag Adlakha as CFO.

Aug 23, 2019: Reports emerge about the bank being in the talks with some private equity (PE) companies to raise about Rs 9,000 crore ($1.2 billion).

Sep 21, 2019: Rana Kapoor sells 2.75 percent stake in YES Bank through the open market, reduces equity to 6.89 percent.

Rajat Monga, Copyrights: MLConf

Oct 3, 2019: Yes Bank group president Rajat Monga quits.

Oct 7, 2019: Reports emerge that the bank is looking to raise about Rs 2,000 crore by selling 15 percent of its stake through equity issuance.

Oct 11, 2019: Yes Bank co-promoter Gogia and family says they are willing to dilute stake if large investor comes in.

Nov 1, 2019: Reports of YES Bank getting a binding offer of $1.2 billion from Hong Kong’s SPGP Holdings emerge.

Nov 3, 2019: DBS denies reports of YES Bank acquisition after the latter claims in the exchange filing that it received strong interest from multiple foreign, as well as, domestic private equity and strategic investors.

Nov 14, 2019: YES Bank’s auditor BSR & Co seeks fresh audit after complaints were leveled by a whistleblower about irregularities in the bank and conflict of interests in relation to founder Rana Kapoor.

Nov 30, 2019: SPGP Holdings, backed by Canada-based Erwin Braich, offers a $1.2 billion deal to YES Bank.

Erwin Singh Braich, Copyrights: Inshorts

Dec 2, 2019: Yes Bank shares slump 5 percent as brokerages raise concerns over ‘lesser-known investors.’

Dec 6, 2019: Shares of Yes Bank fall over 9 percent after global rating agency Moody’s downgraded the ratings of the private sector lender with a ‘negative’ outlook, citing asset quality concerns and the shrinking capital

Dec 11, 2019:  Brokerage Macquarie questions YES Bank’s board for announcing offer from Braich, who has been involved in several lawsuits, without a background check.

Dec 17, 2019: Concerns emerge about the future of the bank with experts pointing towards merging the lender with a much-established bank. Experts point towards Kotak Mahindra Bank as the likely option.

Jan 13, 2020: YES Bank announced that it will not proceed with the $1.2 billion offer by Canada-based Erwin Braich. It also further scales down its fundraising plans.

March 5, 2020: The government has approved a plan for State Bank of India to form a consortium that will buy a stake in the debt-ridden private bank, reports Bloomberg.

While on one side the government is privatizing the banking sector and on the other it fails at regulating the private banks, Yes bank’s story speaks volumes about the nation’s retrograde banking reforms.

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