Banking is good business unless you don’t do anything dumb. – Warren Buffett

As a finance student, I was tracking the case of Yes Bank. I was invested in Yes bank for some time after Rana Kapoor’s Leave. So how does he behaves with Madhu Kapur, wife of the late Ashok Kapoor, the second founder of Yes Bank, who dies in the terrorist attack on the Oberoi Trident Hotel. The story of Yes Bank is nothing less than thrilling and full of entertainment. There are many things to learn for you if you want. Corporate governance, Textbook-style Banking, FinTech, Promotership, Lessons of Risk Management, Father-daughter love, the extra active Regulator who was sleeping for quite a long time, Subprime financing, Indias Doomed banking sector, NPA… You name it, and it is there.

The story of Yes Bank will start looking more enjoyable when you realize that Yes Bank receives IN PRINCIPLE approval for The banking license with Kotak Mahindra Bank. Both started as NBFC. By giving both of them a Banking license, RBI played one risky game. But today, both stand at two different points in the spectrum of success in banking. One successfully fought to keep his stake higher in his Bank. Another thought called It Diamonds are forever But still forced to Sold them by the situation.

So let’s start.

The Yes Bank story began in 1999 when three successful bankers came together to float a non-banking financial company.

They were Ashok Kapur, the former country head of the ABN Amro Bank, Harkirat Singh, the former country head of the Deutsche Bank, and third partner Rana Kapoor, former corporate finance head of the ANZ Grindlays Bank. In an interview with the Economic Times, Harkirat Singh said he accepted Rana Kapoor as the third partner only after the strong recommendation of Ashok Kapur. The three Indian promoters had a 25 percent share in the non-banking financial corporation, while the rest 75 percent were with the Rabo Bank of the Netherlands. If you go for a hunt, this is similar to what the Kotak Mahindra bank story looks like. Both started as Non-Banking Finance companies. Both began with experienced foreign Institutions and one banker. One partner leaves with time. Both of them received a banking license in 2003. Their similarities end here. (Thank god)

As we dive deep into banking, I want to explain some basic things about banking. Banking is about borrowing and lending. The Better you manage the risk, the more successful you are in the banking business. Let it be collecting low-cost deposits, known as CASA, setting up the fee-based business, Using your infrastructure for transactional banking, keeping your Equity buffer big, keeping a close eye on Bad loans, or diversifying other companies like insurance. There are many businesses a bank can do. But the basic is simple.

Borrow the lower, lend the higher. Manage your business in between.

How to do that is also one thing due to which banking stands—bank rates you based on how risky you are for them. Different kinds of businesses have different levels of risk. Asset-backed loans and mortgages have additional risks. A salaried person has other risks than Business owners. The government has other risks than institutions. Bank applies different interest rates to different peoples based on their risk profile. This decides one part of the income of a bank. Nowadays, banks do many other businesses.

Fee-based business is helpful because it reduces the cost of funds. While you set up bankassurance, you are leveraging your current infrastructure. Setting up a capital market subsidiary is beneficial as they always need to raise funds to use their experience to earn money. In simple words, Risk management is key to a successful Banking Business.

Rana Kapoor was not agreed with that sentence.

Rana Kapoor is the type of person who eats risk, Drink risk, and Breath risk.

One last thing to remember is that three people promoted Yes Bank. Harkirat Singh, Rana Kapoor, Ashok Kapur. Harkirat Singh left the Bank in 2004. Rana Kapoor directly holds a stake in the Bank and also through 2 other entities. Yes, Capital and Morgan credits. Another promoter, Ashok Kapoor state, had through himself and Mags invest. Once you remember those names, this is easy for you.

The Bank came up with an IP0 in 2004. It listed around 12 rupees at that time. Pretty good start. Not bad. Harkirat Singh leaves the Bank at this point. One shock which no one realized how badly can affect the future. Nothing significant happened till 2008.

Terrorist attacks on Mumbai are one turning point for India and YES Bank both. Moneycontrol.com perfectly mentioned this as one blow to the succession plans of the Bank and the promoter family. I firmly believe that we all need to make our will at an early age. This is an example that explains why.

10 Lashkar-E-Taiba militants sailed into the island city from Karachi and killed 166 civilians, injuring over 300. One out of that 166 was Ashok Kapur. He was sitting with his wife Madhu Kapur at the Oberoi Trident hotel when the shooting began. In the chaos, the couple was separated, and Madhu could escape with the help of security officers. However, Ashok could not make it outside. His body was found on the 19th floor of the hotel. This was the starting of one lengthy time that turned Yes Bank entirely from Family owned business to a Professionally run business owned by the finest institutions in India. Before going ahead, take this with a pinch of salt.

Rana Kapoor and Ashok Kapur were friends and married with two sisters. Madhu Kapoor and Bindu Kapur. So after Ashok Kapur’s death, Madhu Kapur was expecting that Yes Bank would recognize them as a succession of Ashok Kapur, and they would get some representation on the Board of directors. The demand got denial in 2009. She requested the same in 2011. Nothing happened. Plus, Management removed her name from the list of majority shareholders. Madhu Kapur received an explanation as It happened due to RBI regulation. One of his favorite reason is to hide from many wrongdoings. The truth is that not only RBI but SEBI, the Regulator of the Indian capital market, requests companies to list any shareholders with more than 1% stake and their transactions. The Promoter shareholding was also under the limit. So Madhu Kapur went on asking seat on Board the Bank for her daughter Shagun. Shareholding of YES bank on March 31, 2010, as per BSE, shows Rana Kapoor held 14.8%, and Madhu Kapur held 12.68%, adding up to 32%, well below the 40% limit of RBI.

Rana Kapoor did not stop here. He published a brief history of Yes Bank in December 2012, in which there is no mention of Ashok Kapur. Following this, Board appointed three directors without any consultation with the Family. As per the article of the Association, Indian partners can appoint three directors until they hold 10% or more stakes combined. Rana Kapoor shows these new directors as independent and starts marketing that we are the business with the highest number of independent directors. In June 2013, Madhu Kapur went to the High Court against this and for appointing her daughter as director. The case took two years, but the court ruled in her favor, quashing the appointment of the three ( so-called independent) directors and declaring that both Madhu Kapur and Rana Kapoor had the right to nominate directors on the Board jointly. This decision has been challenged before a division bench By Rana Kapoor. Rana Kapoor realized that this was affecting the growth of the Bank. So he tried out of court settlement, but until then, the situation was out of his hand. The reasons it went out of his writing are made by himself.

We create our own demons.

NPAs in a simple language means where you made some asset, but it did not give you any return. So in the business of banks, When one of their borrowers stops its payment, it becomes NPA.

To understand it better, let’s go to a few peers. Kotak Mahindra Bank is one leading Bank. Started with Yes Bank, but they do care for NPA. Uday Kotak directly watched many big loans given by Kotak Bank. Uday Kotak mentioned once that, Before providing a loan to anyone, he thought about whether this amount will be back? That helps.

Something similar is with the HDFC Bank. Aditya puri, The man under whom HDFC bank grows from zero till today, is also very strict. I listen to the story that once, one of their customers went to their branch for asking a loan. When his profile looked challenging to lend, he said he was Aditya Puri’s friend. In complete shock, the employee sanctioned the loan and told Aditya puri about it. Aditya puri scolded and said, Mera kai dost Nahi hai. (I don’t have any friends). Their risk manager, Kaizad Bharucha, is one of the strictest in the industry. Due to their strict policies, their NPA levels are minimal, even with corporate loans. ( Corporate loans make up 49% of HDFC bank loan book) No wonder he is the front runner of the Successor of HDFC bank, as Aditya Puri is retiring from the Bank soon.

But when it comes to Yes Bank, The picture is entirely different. A few years back, Rana Kapoor visited Yes Bank ATM near BSE in the Fort area. In the ATM, he found a money plant has dried up. The money plant is Yes Bank’s branding image; Yes Bank offers this plant as a token to its clients. Also, water was leaking from the AC onto the branding of the Bank.

He was so furious that he woke up the marketing and branding head and summoned them to clear it at the earliest. The team worked the whole night and sent an image to Rana Kapoor at 5 a.m. Kapoor was very serious about his brand. ( I wonder why he was not so serious about the risk to his customers.)

When the market was down in 2008-09, and all major banks folded their hands, Kapoor opened YES Bank’s doors. The industry says that his house at Samudra Mahal at Worli would always have evening meetings with corporate who are in deep trouble and no bank is ready to lend them. Kapoor himself used to steer such deals and offer them a loan on their conditions. Giving loans to the industry is nothing wrong. Not everyone is Vijay Mallya. Some are Jaiprakash associates also.

A promoter of a mid-sized shipping company was in a debt trap. He wanted Rs 3.5 billion, and no bankers entertained him. So Kapoor offered him Rs 5 billion over 12 years. The condition was that the promoter would pay Rs 500 million or 10% of the sanctioned loan as an upfront fee. This was Kapoor’s way of banking.

It was not a flawed business model. He lent; he also knew the tricks to recover. He was the only Bank that recovered all its dues from Deccan Chronicle Holdings and Vijay Mallya. But you are not always lucky. From 2008-09 the model that supported him lost its charm after 2015. It became difficult for him to recover. By the end of 2017-18, he already had the top 25 borrowers on the list, which was drilling holes in his Yes Bank ship. When RBI Published the TOP 12 NPAs in India, It came out that Yes Bank was Lender to all of them.

According to industry experts, there was a time when Kapoor met Uday Kotak for a potential investment in the Bank, and by looking at the list of top 25 borrowers, Kotak preferred to stay away. Much better choice. While seeking approval to raise $1 billion from shareholders, Kapoor promised to make Yes Bank the largest Bank in India by 2020. It was a Fundraising that never took place.

The ship started sinking…

I personally never liked the stock named Yes Bank for my reason. But I kept seeing many investors telling the world that they held Yes Bank from so one share price. I am more like an old-age investor who cares for a long-run prospectus. Fundamentals were not much attractive, and it was visible that they were deteriorating.

Rana Kapoor was very convinced about the health of the Bank that he tweeted his famous series of tweets…

It all started in 2016. $1 billion QIP ( qualified institution placement, Raising funds privately ) failed. With so many risky loans on loan books, they always needed capital as a buffer. During those days, Yes bank share was said to be overvalued. Many brokerages were giving underweight calls. In between all that, news brook that QIP postponed. Rana Kapoor gave reasons that it was due to the changed rules of RBI. I remember listening to evening talks in business news about whether there has been any change in regulations recently. There was no change. But if you believe in institutions, They said that Rana Kapoor was raising funds with a value way higher than it is now. It was a time Yes Bank faced a fight between promoters.

It was like a tile falling off one big fort. It was a start.

Here RBI has already started its actions against NPA. February 12, 2018. The circular came and everyone was shocked. Many bankers even mentioned that they have never seen RBI such strict. It was a starting point at the end of the Rana Kapoor era.

And there entered RBI.

RBI was constantly criticized for many reasons. The reason is that India has two completely different kinds of Banking. Private sector banking ( Mostly owned by Foreign institutional investors) and Public sector banking are primarily owned by the government of India. Even after it wanted to regulate full PSU Banking, it cannot. Due to some reasons, private sector banks were not strictly regulated, and that was why NPAs entered into private banks. RBI took so many actions against nearly all private banks. Opening ICICI bank case which ended Chanda Kochhar stepping out, Indirectly telling Shikha Sharma to leave, going against Uday Kotak in many cases. Yes Bank was one easy case for RBI.

As per the regulation, banks must take permission from RBI the extension of their CEO’s and MDs’ tenure. However, in 2018 RBI denied anything extra to Rana Kapoor. “The Reserve Bank of India has reaffirmed that a successor to Shri Rana Kapoor, MD & CEO, Yes Bank, should be appointed by February 1, 2019,” the lender said in an exchange filing. “The bank’s appointed committee is targeting to complete this recruitment process by mid-December 2018.”

The order which made this significant change was full of hard words like serious lapses, persistent governance, and compliance failure reflected by the Bank’s highly irregular credit management practices, severe deficiencies in control, and poor compliance culture.

It reads something like this…

The serious lapses in the functioning of and governance in the bank and, in particular, the poor compliance culture, other serious violations of statutory and regulatory guidelines during the past three financial years, notwithstanding the subsequent corrective actions stated to have been initiated by the bank, reinforce our grave concern and regulatory discomfort with the role of the incumbent MD & CEO in the governance, management and superintendence of the affairs of the bank.

RBI sent a message to the Bank on September 17, 2018, saying to search for his successor on or before January 31, 2019. Yes, Bank had about ₹ 2.23 trillion in deposits and had extended loans and advances of up to ₹ 2.40 trillion as of September 2018. A number to remember.

The Bank’s Board has recommended clawing back bonuses paid to Kapoor for the two years ended March 31, 2016, after the adverse observations made by RBI. The Board also recommended that no bonuses be paid to Kapoor for fiscals 2016-17 and 2017-18 and did not propose any bonus for the following year. In addition, it has recommended not raising Kapoor’s salary for 2017-18.

Ravneet Gill era…

Moneycontrol Wrote one post with a perfect Heading for Ravneet Gill, A man who said YES to the wrong Job. But isn’t everything wrong in this Bank? So where is Rana Kapoor SAYING YES TO EVERY WRONG THING?

The day he took charge, YES bank share was up 3%, which was not a shock. The market was watching this man with hope. By taking the Job at Yes bank, Ravneet gill ended his 28 years of relations with Deutsche Bank. He was CEO of India at Deutsche Bank AG, India. He joined the Bank in 1991, leading sections like capital markets and treasury solutions. With more than 30 Years of experience in structured financing, foreign exchange, transaction banking, risk management, and private banking.

The challenges were enormous in front of him. Yes Bank was like a burning coal in the Indian Financial system due to its sheer size of deposits. Refer to the number mentioned above in this post.

Yes Bank was not some tiny bank. It was India’s fourth-largest private sector bank. Not only with The deposits, but the technology is made available to many websites and apps for their payments. It was like oxygen to Phonepe, Microsoft, and IRCTC. Total of 18 payment aggregators. This was one great strength of Yes bank. But that will not permit them to ignore the NPA issue.

As per the Enforcement Directorate report, About Rs 34,000 crores granted by Yes Bank to 44 companies of its top ten defaulters have gone wrong. While Rs 12,800 crore loans to Anil Ambani group have turned sour, Essel group owes Rs 8,400 crore and DHFL Rs 4,735 crore and 2500 crore of IL&Fs. When private banks were not ready to lend to Aviation companies, Yes Bank made business 1100 crore with them. Kerkar Group and its two companies, Cox & Kings and Go Travel, were granted loans worth Rs 1,000 crore. The NPA list includes Bharat Infra, McLeod Russel Assam Tea, Eveready of BM Khaitan Group (Rs 1,250 crore), Omkar Realtors and Developers (Rs 2,710 crore), Radius Developers (Rs 1,200 crore), and C G Power (Rs 500 crore). The absolute NPA figure is a staggering Rs 40,709 crore.

Let me tell you one thing again. Banking is a heavily leveraged business. That is why some ratios, like interest coverage, will not work with banking. In banking, Return on Assets is significant. 1% is assumed to be healthy. Capital adequacy is another important as the Bank is supposed to pay its Depositors as and when they ask, no matter what. For their safety, Bank is supposed to PROVIDE something for those bad loans. So the money of depositors will be safe. Equity Investors in banks are the one who takes the entire risk. Rana Kapoor never understands it. He kept increasing tall buildings on minimal capital with little to no provision against Bad loans.

Ravneet gill did one thing right. He discloses all NPA accounts that Rana Kapoor hid. But that ended wrongly. In one of his interviews and during one of their quarterly results, he said that we RINGFENCED LEGACY issues—a big statement to make. But the situation was deteriorating fast.

The situation was so bad for YES bank that if they decided to make provision for this lousy loan, the whole of their capital would be wiped out. If not do that, The Bank will fail to pay back depositors. So there was no option but to raise money.

When Ravneet gill tried to raise, his statement was like marketing. For example, he once said that Microsoft is investing in Yes Bank, which never happened.

Once there was a list. In the interview with CNBC TV 18, He talked about it. The names were Hong Kong-based SPGP Holdings, backed by the Canadian family office of Erwin Singh Braich for $1.2billion. Others cumulatively account for 0.8 billion include the Citex group, GMR, Rekha Jhunjhunwala, Aditya Birla family office, and one big US Fund with $120 million. ( They never disclose the name.) The fun started when the internet found out Erwin Singh Braich made default twice in his life. He lives in a hotel room. In his interview with CNBC, Erwin Singh said that he liked the LOGO and the name of the Bank, so he said Yes to the investment ( of $1.2 Billion). Seriously?

GMR is an infrastructure company that itself has a heavy debt pile. RBI will never like such an investor in the Bank.

While in front of Rana Kapoor, He declared that he was not interested in selling his shares as they are Diamonds and Diamonds are forever.

While ignoring the length, I wanted to mention that at this point, Karma Started to haunt Rana Kapoor.

Once Rana Kapoor, who dropped the name of Madhu Kapur from the significant shareholder’s list, himself lost his name from that list. The reasons were many. He sold some stakes. Reliance Mutual fund, with which it was pledged, sold some of his stakes. The reason he sold was, in fact, his daughter Roshni Kapoor and her one venture. For which he borrowed some amount. To repay that debt, He sold his stake. At that point, Madhu Kapur becomes the largest stakeholder. ( Rana Kapoor once denies a board seat to Shagun Gogiya, daughter of Ashok Kapur) He lost his stake in Yes bank due to His daughter and Her Venture.

On another front, Failed to raise capital, Yes bank starring few Defaults. Some investors and Corporate depositors who were listening to all news started leaving the Bank. Even with One of the most delicate Fintech infrastructures and the Dream of being the biggest bank in India, reality began to haunt them.

Superman ( Shaktiman) enters…

Financial markets were listening to all this, but everything went wrong when it delayed the results of FY 2019 Q3. Everyone sensed something was going wrong. At that Moment, Ravneet’s gill was like does not exist. The confusion was going on about capital. The reason given by the Bank For delaying results was a capital raising exercise. Something was fishy here.

Finally, one fine day, RBI came up with a notification of a moratorium with a withdrawal limit of Only Rs. 50000. It hurts many depositors who were keeping their faith in the Bank. Something needed to be done.

I don’t know what many things were going on, but the rumors were always there about the merger with SBI. In recent times, the current best example itself was one year earlier when in February 2019, LIC took a stake in IDBI bank. There were some issues with the merger with SBI. But When any financial institutions become Too Big to Fail, this one possibility is always there.

Finally, a consortium led by SBI includes HDFC, Kotak, Axis, ICICI Bank, Bandhan, Federal, and IDFC, the first Bank to invest. RBi and SEBI permitted this investment as a particular case, and SBI held 49% of Yes bank. HDFC and ICICI Bank invested 1000 Crore. SBi invested more than 10,000 crores. Those investors received shares face value of Rs. 2 with a premium of rs. 8. This becomes a particular case because, in other cases, anyone buying a 26% stake in any company will be forced to come up with one offer. Any investment by any bank in any other company is strictly under the lenses of RBI, But here the issue is of saving one Bank. Former SBI CFO Prashant Kumar Become New CEO of the Bank.

RBi took another step, which made noise in the financial market. RBI scrapped Additional tier 1 Bond worth 8400 crores. In between, Prashant Kumar went ahead with the original plan of the Bank to hive off bad loans into separate entities and try to recover the amount… Yes. It is BAD Bank. RBI removes the moratorium. But the numbers which came into the picture were horrible. Yes, the Bank lost nearly half deposits, and the net worth was only Rs. 40000. Without the help of SBI, It was ready to die.

In further steps taken, RBI Blocked 75% of the shareholding. New Management started their effort to resolve it completely. Recovery started. Many lost clients returned. Fintech people who were partially lost, the Bank succeeded in keeping its status somewhat.

The last stage came when the Bank came up with FPO worth 15000 crores. The problems started from one failed attempt to raise money worth $1 billion, which ended up raising around $2 billion quickly. It receives some big names as its shareholder like Punjab national bank, Union Bank of India, Edelweiss, Tildon park capital, HDFC standard Life, Amansa holding, Elara India, and Jupiter India. In addition, LIC and SBi increased their stake.

The Bank started with Rs. 300 crore IPO ended up with 15000 crore FPO. It is beginning its second life with Some of the finest Institutions as its promoters.

It went through many stages. But the big thing is it is alive and Running towards its goal.

To become the Biggest Bank in India.