Why Yes Bank Failed? | Yes Bank Crises explained

Few years back, Yes Bank have been India’s 6th largest Private bank. But all of a sudden What led to its fall?

In year 1998, Mr. Rana Kapoor along with Mr. Harkrit singh and Ashok Kapur started an NBFC of Rabo India Finance. This NBFC was co-created in partnership with Rabobank of Netherlands.

But in year 2003, they have terminated this partnership and Rana Kapoor, Harkrit singh and Ashok Kapur have sold their stakes because they wanted to set up Yes Bank.

In 2004, they have got the Bank License and the operations of Yes Bank had begun.

But in the beginning phase itself, Mr. Harkrit singh have left the Bank. After which the control of the bank got into the hands of Mr. Rana Kapoor and Ashok Kapur.

After Harkrit singh left, Rana Kapoor became the CEO and Ashok Kapur became the chairman of Yes bank.

Till the year 2008, they both had run the bank operations very smoothly but when in year 2008, 26/11 Mumbai attack took place, Mr. Ashok Kapur died in the attack.

After which all the operations of the bank were taken over by Mr. Rana Kapoor and after the Demise of Ashok Kapur, his wife Madhu Kapur got all his stakes.

But Rana Kapoor kept Madhu Kapur away from the bank’s operations and he also removed Madhu kapur’s name from the major shareholders’ list which ultimately led to a very less control by Madhu Kapur in the bank and Rana Kapoor started running the bank in his own way.

From the period of 2008 to 2018, Yes Bank have shown a nice growth. Company’s profit started growing commendably.

But there were lot of things hidden behind this profit which started revealing after the year 2018. And because of which its share price have degrown at a very rate.

Broadly, Banking industry is different from all other industries. Profit comes first in banking sector followed by losses.

Rana Kapoor was very aggressive towards his business operations and granting loans to other companies.

Even if the company is in loss and facing various challenges, he used to grant loans to them anyhow. But along with this he used to take care of the fact that whatever amount he grant as a loan, he get back that amount.

He knew how to run the operations well and that was the only reason why Yes bank’s profit from 2008 to 2018 was increasing with an annual rate of 35%.

Why the share price of Yes Bank started decreasing ?

The first reason behind this is that Yes Bank kept his Non Performing Assets(NPA) Hidden.

In year 2018, RBI got to know that lot of banks were having NPAs and after which RBI started finding that how much NPA is being hold by various banks and RBI started asking for NPA data from the banks.

But when RBI done the actual analysis of Yes bank then they got to know that the NPA figure provided by them to the RBI is different than the actual figure and in fact they were way less than the actual figure.

So, when all this came into the notice of RBI then RBI have appointed its former deputy governor Mr. R Gandhi as Yes Bank’s additional director.

And after all these things, RBI refused for the Extension of CEO Post of Rana Kapoor and hence, Rana Kapoor had to vacate his CEO post in Jan 2018.

The second reason behind its performance was that it had aggressively given loans to various companies.

Till 2018, Yes Bank’s P&L Statement had shown high profits but balance sheet was saying something else. Eventually those loans started becoming NPAs .

Yes bank had given loan to those companies which today are either have become Bankrupt or are on the verge of becoming bankrupt such as ESSAL Group, DHFL, Anil Ambani’s Company, Coffee day enterprise etc.

And because of these NPAs, Yes bank is regularly reporting losses.

In the Q2 of FY 2020, Yes Bank’s gross NPA was 7.39%, which was way too much.

Recently, Mr. Rana Kapoor had sold almost all his stakes. And Yes bank’s shareholders are very happy from Rana Kapoor’s exit as the shareholders had lost all their faith in Yes bank’s management.

But now after Rana Kapoor left, a new management came into the bank. Mr. Ravneet Gill who is currently the CEO of Yes Bank is trying to turn around Yes Bank but this is not really very easy because Yes bank is already having more than 1 lakh crore of debt and NPAs are continuously increasing since last year.

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