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Yes Bank, No Bank

Yes Bank

There lies a clear difference between operating a family run business like the Ambani, Birla and Tata empires and a bank. The point of difference lies in accountability. In family run businesses, the patriarch or matriarch is the one that calls the shots and even though such a business may be a publicly listed one, various family members and relatives are usually on the board of directors (in addition to minimum number of independent directors of course) to ensure that no wishes of the lead promoter go wanting. Banks are a different ball game, unlike a family run business which does not have a limit on promoter shareholding, regulators have capped this limit to 20% promoter shareholding for banks, with a further guidance to reduce it to 15% in the near future. A stricter regime for the banking sector is due to the fact that public money in the form of deposits and current and saving accounts are in the possession of banks and a more transparent system of corporate governance and accountability is needed to preserve the public nature of their banking activities. These lines of accountability and corporate governance seemed to be blurred in the case of the country’s fifth largest private lender, Yes Bank. The bank seemed to be run in a very autocratic manner by its MD & CEO, Rana Kapoor and the latest debacle that the bank and its shareholders face are a result of no one questioning his authority when questions were warranted.

The journey of Yes bank began in 2003 when three middle aged professional entrepreneurs who had helped Netherlands based Rabo Bank set up shop in India, obtained a banking licence from RBI. Ashok Kapur, Harkirat Singh and Rana Kapoor who collectively owned 25% stake in Rabo Bank’s Indian operations sold their stake and set up Yes Bank with a capital of Rs 200 crores. While Kapoor and Kapur, who were also brothers-in-law, continued with the business, Singh quit soon after it began operations. A little known bank at the time, Yes Bank took small bets in the corporate lending segment in sectors like real estate, pharmaceuticals, renewable energy, electrical and media. Things seemed to be going well and Yes Bank hit capital markets with an IPO in 2005 and saw the value of its shares consistently rise, although by this time it was not in contention for being one of the big boys of banking battalion. Tragedy befell the Yes Bank family in 2008 when one of its founders Ashok Kapur was tragically gunned down during the horrific terror attack in Mumbai in November 2008 whilst at the Trident Hotel. Since then, the only founder remaining of the bank, Rana Kapoor took the reins and led the bank forward.

The banks first big break came in 2010 when RBI announced deregulation of savings account deposit rates. Sensing an opportunity, Yes Bank offered an attractive 7% rate of interest on savings deposits while other banks didn’t tweak theirs by much from the earlier 4%. Funds in the form of deposits poured into the coffers of the bank due to which Yes Bank did not require to look for alternate and often more expensive sources of funding. As a result deposits skyrocketed to Rs 73,176 crores in 2018 from a paltry 4,751 crores in 2011. At the same time an increased effort was being made to aggressively beef up its loan book as well. According to a Bloomberg Quint report, total advances as on march 2008 stood at Rs 9,340 crores, which rose to over Rs 2,00,000 crores as of march 2018.

Things began to take a turn for the worse when accusations began to surface from Madhu Kapur, wife of deceased former promoter and founder Ashok Kapur of alleged oppression and being completely side lined from the management and operations of Yes Bank even though her family was rightfully entitled to participate in important decisions. Shagun Kapur, daughter of Madhu Kapur, was not allowed to be nominated on the BOD of Yes Bank even though she was qualified to do so. Further, the name of Madhu Kapur was struk off from the list of major shareholders in an attempt to completely undermine the position of the Kapur family’s holding at Yes Bank. Finally with a court room drama playing out over this issue and both parties resorting to stern accusations and name calling against each other, the court in June of 2015 ruled in favour of Madhu Kapur allowing her daughter to receive a berth on the board of the bank. The bank hit a hurdle in 2015 when RBI conducted an asset quality review of banks to ensure that NPA’s were being correctly classified and reported as per its guidelines. On a scrutiny of Yes Bank’s accounts, many divergences were observed to the dissatisfaction of the regulator who accused the bank of improperly identifying and reporting bad loans and window dressing of accounts. As a result of this finding, the NPA ratio of the bank jumped and was not taken in positive light by the regulator or investors. Problems started to compound when the bank witnessed a failed Qualified Institutional Placement (QIP) of a billion $ under mysterious circumstances which also led to an investigation by SEBI.

Just recently, Yes Bank was in the news for all the wrong reasons. On Friday its shares tanked by 30% when RBI denied its promoter an extension of a three year term as was voted upon at the AGM by its shareholders, instead providing Rana Kapoor only three month extension until 31st Jan 2018 and instructed the lender to look for a replacement. The RBI in its official communication with the bank cited reasons such as “Weak compliance culture, weak governance and wrong asset qualification” as the reasons for its actions. The regulator has been coming down hard on the management of banks and perhaps Rana Kapoor is the latest example after Shikha Sharma of Axis Bank and Chanda Kocchar of ICICI Bank to be pulled up for questionable banking practices that only focus on loan book expansion without accounting for risks that may emerge in later years.

 

 

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