India’s banking system rose to new heights when the value migration from public sector banks to private sector banks started. The 21st century marked the revival of the Indian Banking industry with leading players like HDFC and Kotak Mahindra Bank.
One such Bank whose story would always be glorified in the Indian Banking space witnessed an unforgettable journey to the top and then suddenly falling from the cliff of success. Yes, you are guessing it right; the infamous Yes Bank.
The Bank was touted as India’s next HDFC as it held an incredible run in its deposit and credit growth. At the same time, it proved to be a source of massive wealth for stock market punters as the company was reaping in big profits. Today, we’ll read the analysis of Yes Bank Story and how it went from top to bottom.
Yes, Bank Story - How it all started?
The founder Rana Kapoor worked as an intern in the US, where he gained experience in the banking and financial services industry. After returning to India, the Yes Bank story came into the picture in 1999, where Rana, along with other two bankers, founded a non-banking financial company.
The founders had 25% shareholding, whereas the rest of the stake was held by Rabo Bank of Netherlands. Soon, Yes Bank acquired a banking license from RBI in 2003. The First branch was opened in Mumbai.
The Mumbai based Bank had a bumper listing on the Bombay Stock Exchange in 2004 as it raised over 300 crores.
It was a small bank among big private players, but businesses and investors started favouring other banks. When other banks avoided giving loans to big corporates, it came to the forefront to provide big-ticket loans to corporates with an additional 2%-3% interest rate.
Rise of the Yes Bank Story
- Opportunity in 2008: Yes Bank got prominent popularity as it was never reluctant to give risky corporate loans. When the global financial crisis in 2008 happened, the whole banking sector had bitten the dust except it.
It leveraged the opportunity when other banks were struggling and offered colossal loans to companies, and boosted its credit growth. In the first six years of operation, the Bank skyrocketed by 70% CAGR. - Expansion of the Business: Yes Bank also focussed on its lending segment to small and medium business enterprises as it realised the greater potential in these businesses.
Besides, it ventured into other financial segments like Broking, Asset Management, Wealth Management and Portfolio Management etc. Corporate lending was the most eminent source of revenue for it. - Innovative Business Model: It saw an unprecedented run as the balance sheet demonstrated a growth of 30% CAGR while also having affordable access to the credit cost. The Bank’s mantra was B2B2C.
Yes Bank took advantage of the cheap credit cost to target retail loans and small business loans to boost its healthy balance sheet. - Breakthrough Partnerships: The focal point was the supply chain of corporate customers like the Bank planned to launch a branded debit card in partnership with insurance to get access to millions of its customers directly.
Besides this, the innovative mindset of founders is proven by the fact that it partnered with Intel to launch the first WiFi-enabled bank branching system. IN 2011, it was voted as the fastest growing Bank of India.
Yes Bank Story - Factors leading to a Sudden Fall
A Bank’s business model is immensely complex, so sometimes the speedy growth counter-attacks on the financial metrics. Unprecedented growth for a bank comes with set challenges and threats.
- Aggressive Lending: Gradually, Yes Bank’s exposure to risky corporate loans started showing its colours. It had given gigantic loans to companies going through financial distress like Essel Group, Jet Airways, IL&FS and DHFL group.
Unfortunately, it led to an exponential rise in Non-performing assets, which is a detrimental sign for any bank - Rising Bad Assets: Massive amount of 3 lakh crore due to these big-ticket lending accrued bad assets for the Bank. In 2019, NPA’s reached a shocking number pegged at more than 3200 crores.
All the aggressive loans hit the company hard as these financially distressed companies depicted negative growth, and some came on the verge of bankruptcy. - Deteriorating financial position: The company’s credit ratings dramatically dwindled, and can not raise money from potential investors to solve its liquidity issue.
The clouds of distress started coming over as the deposit growth happened to nosedive. A report claimed that the Bank lent more than 120 per cent of its net worth to financially distressed companies. - Economic Crunch: The country’s economic cycle has not shown improvements in the last 5 6 years which led to the sluggish growth of Yes Bank. Besides this, the governance of Rana Kapoor did not live up to the expectations after favouring his motives over the business.
The Reserve Bank of India also took a long time to put the Bank in its corrective action plan, which took a heavy toll on the Bank’s financial health.
Yes Bank saga serves as a perfect example of bad governance and poor asset-liability management. Cited as the 4th largest private sector bank, it contributed to its downfall. It unravels that to run a bank, quality should never be compromised for sake of quick growth.
After a great run and sudden fall, now, the Bank is undergoing a process of resurrection. RBI has appointed its representatives to run the mundane operations of the Bank smoothly. The culprit Rana Kapoor was sacked by the Central Bank.
It is showing early signs of improvement with a small enhancement in deposit growth. Gradually, the Bank has to create goodwill and establish customer relationships to come out of the hole and again walk the path of growth and prosperity.
