Yes Bank Crisis Explained

Introduction

This tutorial explains the downfall of Yes Bank, highlighting the key events and decisions that led to its crisis. Understanding these factors can provide valuable insights into banking governance and risk management.

Step 1: Recognize the Initial Success of Yes Bank

• Yes Bank was founded by Rana Kapoor, who built it from the ground up.
• The bank reached an impressive valuation of ₹3.4 lakh crore within a decade.
• Kapoor's strategy involved taking risks and making deals with companies struggling to secure funding.

Step 2: Identify Key Issues Leading to the Crisis

• Two years prior to the crisis, Yes Bank was required to disclose non-performing loans.
• The reported non-performing assets (NPAs) were significantly understated:
  • ₹4,400 crore in excess of the ₹800 crore reported in March 2016.
  • This discrepancy grew to over ₹7,000 crore the following year.
• Continuous losses were reported for four consecutive quarters, undermining investor confidence.

Step 3: Understand the Governance Failures

• The Reserve Bank of India (RBI) intervened by appointing R Gandhi, a former deputy governor, to the bank's board due to governance issues.
• Rana Kapoor's reappointment as MD and CEO was denied by RBI, citing corporate governance and risk management concerns.
• Following these events, Yes Bank's share prices plummeted from over ₹400 to below ₹100.

Step 4: Examine Attempts to Raise Capital

• After losing investor confidence, Yes Bank struggled to raise capital.
• In November 2019, the bank announced plans to raise $2 billion, but these efforts failed to materialize.
• As customers began withdrawing funds, the bank's liquidity further decreased, exacerbating the crisis.

Step 5: Analyze the Rescue Plan

• The State Bank of India (SBI) agreed to acquire a 49% stake in Yes Bank.
• SBI committed not to reduce its 26% holding for three years following the investment.
• On March 5, news of SBI and LIC's involvement led to a brief rally in Yes Bank's stock, which surged by 25%.

Step 6: Review the Impact of the Investment

• SBI and LIC acquired a 49% stake at ₹2 per share, while market trading values were around ₹37.
• This significant price disparity reflects the challenges Yes Bank faced in restoring investor trust.

Conclusion

The downfall of Yes Bank serves as a critical case study in corporate governance, risk management, and the impact of financial misreporting. Key takeaways include the importance of transparency in financial reporting, the necessity of strong corporate governance, and the potential repercussions of investor loss of confidence. For individuals interested in finance, this case highlights the need to monitor financial health indicators and governance practices within banks closely.