Yes Bank has had one of the most unique and rapid growth stories. From being founded in 2004, to becoming the 4th largest private bank in India, Yes Bank has come a long way – very fast. The Yes Bank share too has done wonders for those who got on in early.
But more recently, the founder, Rana Kapoor has been asked to choose a successor by RBI – he can’t continue as the CEO. This has the Indian stock markets worried.
The Yes Bank share has fallen to nearly half of what it was just a few months ago.
But is this fall justified or is this a very emotional reaction to a problem which isn’t really very big?
In this article
Yes Bank share: ₹181 (31st December 2018)
The Yes Bank share peaked at ₹394 earlier this year.
Yes Bank: rise to glory
For the ease of understanding, we’ll break the rise of Yes Bank into 3 phases.
Of course, in real life, this was all one move but we’ve broken it into 3 parts.
Yes Bank: growth phase 1
Phase 1 for the Bank comprised of the period from late 2004 until 2010.
During this time, the Bank focused on innovative strategies and low costs which took the balance sheet from 0 to INR 36,000 crores.
It also did not feel the shocks of the Global Financial Crisis of 2008 when all the major banks faced the brunt.
Though Yes Bank was unscathed by the 2008 financial crisis, it got a severe blow in 2008 when one of the founding members and Rana Kapoor’s brother, Ashok Kapur fell victim to the Mumbai terrorist attacks.
He was known to be a traditional banker and was apt at risk management and did not appear much in the public, and Mr. Rana Kapoor was the public face and entrepreneurial ideas.
As of 2008, Mr. Kapur held a 12 percent stake in the bank.
These were eventually inherited by his wife, Mrs. Madhu Kapur.
Yes Bank: growth phase 2
In spite of this major loss, Yes Bank continued to steer its way towards success.
In phase 2, from April 2010 onwards till 2015, Yes Bank focused on scaling up operations gradually with a focus on retail banking. Consequently, its number of branches and the ATM network swelled tremendously.
The balance sheet size too crossed over Rs 100,000 crore in 2015.
However, another blow came to the Company’s operations when in 2013 Mr. Ashok Kapur’s wife Madhu Kapur, who inherited the stake of her husband, dragged Yes Bank to court demanding equal voting rights to nominate a director to the company’s board.
The two-year-long court battle took a nasty turn with some name calling.
Kapoor’s niece, Shagun Gogia (Madhu Kapur’s daughter) was highly critical towards Rana Kapoor during this phase of the Bank.
Therefore, at this juncture, the Bank had to face reputational loss as well.
Yes Bank: growth phase 3
Yes Bank today is operating in phase 3 and is making a paradigm shift from a medium sized player to a large player.
It has received various accolades during this stage. The most recent one being Bank of the Year by the Banker Magazine (Financial Times, UK).
The Bank was also included as the Youngest Indian Company to be a part of the Forbes Global 2000 List.
Currently, the balance sheet size for the Bank has crossed 3 lakh crores.
Yes Bank’s unconventional decision making
The path to success for Yes Bank has not just been following a disciplined approach but also improvising and leveraging at times when the going has been tough. Let us look at few cases where the leadership of Mr. Rana Kapoor helped the Bank steer to more glory.
The very first instance was in 2008. The crisis had taken part in a very early part of the Bank’s life. They saw an opportunity to acquire new customers and build confidence. Therefore, given the scale and size, the Bank started to offer reasonably large sums in credit lines.
This when other banks were dealing with liquidity issues. Thereby, the Bank got more relationship breakthroughs during this period as compared to the earlier years.
Another such event had occurred in 2006-07. Bajaj Electricals was looking for a loan for a company that his firm had acquired earlier. The company had already become debt-free post the acquisition. However, no banks agreed for further loans for the Company.
Yes Bank seized the opportunity. In an interview, Shekhar Bajaj, managing director of Bajaj Electricals, had informed that Mr. Rana Kapoor didn’t just follow the traditional approach of looking into only the balance sheet numbers and ratings before disbursing the loans.
They saw the bigger picture i.e. an association with a large parent company. Yes Bank charged 2 to 3 percent higher interest.
Ultimately, Yes Bank made extra money without really taking any additional risks as Bajaj Group had already given them a corporate guarantee.
This practice of unconventional decision making also came in the day to day operations of the Bank. It was one of the first banks to outsource its entire technology requirements to Wipro Infotech. The bank outsourced the core IT infrastructure and hardware, networking, managing the data centre and backup support for disaster recovery, hardware procurement and servicing of the network.
Soon after Yes Bank, a number of other private and public sector banks replicated this model. This model of outsourcing resulted in cost savings of almost 30 percent for the bank. Following this has enabled it to focus fully on its core business of banking and strategic initiatives.
Yes Bank: Major Setbacks
The Bank had to face two major setbacks since its inception in 2004.
The first one came after the death of one of the co-founders, Mr. Ashok Kapur.
In 2009, Madhu Kapur, who then had inherited the shares of her late husband, had asked to be inducted in the Board of YES Bank. But it was eventually found not in accordance with the ‘fit and proper’ guidelines of the RBI.
Later in 2011, Madhu Kapur found her name missing from the list of major shareholders in Yes Bank’s annual report and it only mentioned the name of Rana Kapoor.
A similar incident happened in the next annual report as well. The Kapur family felt that an attempt was made to erase the name of Mr. Ashok Kapur and attribute all the credit for the bank’s success to Rana Kapoor.
It was decided to include Shagun Kapur in the Yes Bank’s board as she had already gained a lot of experience in this field.
As major shareholders, Madhu Kapur had to be consulted before appointing the directors.
Rana Kapoor had already decided on the names of the directors which were to be announced in the next AGM.
But that was contested by the Kapurs and a petition was filed in the Bombay High Court to the stay the AGM. Later 80 percent of the shareholders had given their nod to the appointment of three directors and Kapurs had lost the battle.
This family feud impacted the reputation of the Company.
Another setback for the Company happened lately when on 21st September 2018. The company lost Rs 22000 crores in a single trading day.
The problem has been what India has been facing for the last few years and has become the hot topic recently i.e Non-Performing Assets.
The current estimate is that the total NPAs in the banking industry is more than Rs 10 lakh crores. A majority of this is arising from public sector banks.
Since 2010, Yes Bank started to increase its push into retail loans (lending to common people and comprises home loans, personal loans, car loans etc).
It was expected that this would form a major part of the loan portfolio.
However, we have reached 2018 and corporate loans still account for 90 percent of the advances for the Bank.
According to reports by RBI, the biggest offenders or the people creating NPAs are large corporates. This is because the ticket size is so large that even a couple of defaults can lead the NPAs to swell.
Now the method of interpreting NPAs is different for different institutions.
In 2018, Yes Bank reported that 1.28% of its total loan portfolio was classified as GNPAs, out of which 0.64% of its portfolio was deemed to be NNPAs. (NNPAs = GNPAs – Provisions).
A year earlier, the total NPAs as per records of Yes Bank stood at roughly Rs 2000 crores.
However, when RBI carried out its independent audit, it came to light that the total NPAs stood at Rs 8,300 crores. This meant a diversion of around 315 percent.
This along with few exposures of Yes Bank to the companies which according to RBI were going to be liquidated sounded alarm for the Bank.
In spite of various warnings, Yes Bank did not set aside adequate provision as a result of which RBI decided that Rana Kapoor won’t be able to continue as CMD after January 2019.
This news resulted in the stock to correct by more than 50 percent highlighting the trust shareholders repose on the Chairman.
Rana Kapoor: early life?
During childhood, Rana Kapoor fancied getting into the business. He often had a discussion about this with his grandfather, who was into the jewelry business.
None of his grandfather’s four sons were interested in following the tradition of business in the family. However, Rana Kapoor, since a very early age had the entrepreneurial instincts. That took shape later when he founded Yes Bank in 2003.
After studying economics, Rana Kapoor went to study at Rutgers University in New Jersey. There he got an opportunity to intern in the IT division at Citi Bank (New York). The glamour and glory of the city fascinated him the most and he was inspired enough to build something on the similar lines in India.
All his experience that he gained post graduating from the University came in very handy later. Mr. Kapoor began his career with the Bank of America in 1980, and spent 15 years working across Asia. Eventually, he was heading its wholesale business.
During this stint, he had already created a business plan for creating an NBFC (Non-Banking Financial Company) of his own. It was rejected by the American Insurance Group. But, he didn’t lose confidence there and continued on the grinding path.
After heading operations of ANZ Grindlay’s in India for a couple of years, he started out as a professional entrepreneur and helped Rabobank (Financial Company based out of Netherlands) develop its India market. Mr. Kapoor became the CEO and managing partner of the new NBFC, where he and his two partners had 25 percent equity.
Though the process for successful completion of this project was a tough one as the Asian Financial Crisis had just broken out, the lessons that were learned and partnership that was formed during this stint was invaluable. No one knew Rabo Bank at that point in time and they slogged to build an organization in times of adversity.
The Yes Bank Story
In 2004, the three partners decided to take the big leap into the banking industry in India.
Therefore, they sold off their shares in Rabo India and obtained a banking license from RBI.
Yes Bank was formed with the initial capital of 200 crores. The shareholders comprised co-founders Kapoor and Kapur (55%), the Dutch financial services firm Rabobank (20%) and private equity players (25%).
The name Yes was decided amongst the choice from four others (Mint Bank, My Bank, Gateway, and Octra) as Mr. Kapoor thought that the name Yes reflected the mood of the nation, highlighting the country’s momentum and would also create an institutional image as a new age Indian Bank.
From early 2004, when Yes Bank kicked off its operations, until 2010, the new generation bank focused on innovative strategies to survive the much-established players and grow while keeping costs under control.
Then came the bold decision to launch the IPO (Initial Public Offering), which they did within nine months of the creation of the Company.
Mr. Kapoor wanted to build the best internal and external confidence along with the highest levels of governance and accountability and hence made the Company public.
It came out with an IPO of 70 million shares in July 2005, raising a total of INR 315 crore of capital at a price of Rs. 45 per share.
Much to the anticipation, it got oversubscribed 30 times.
Yes Bank has a perfect fairy tale story from seeing massive growth in its nascent and expansionary stage at the same time witnessing and coming back to the ground after major setbacks.
One good thing that has happened lately is that Rana Kapoor and Madhu Kapur have amicably decided to consider out of court settlement to resolve the issue.
However, one cannot discount the fact that the sequence of events that have panned out also led few directors to resign.
Ashok Chawla, Yes Bank’s non-executive Chairman resigned recently stating that the Bank would need a chairman who could devote more time and attention while chief executive Rana Kapoor is on his way out.
These are testing times for the Bank and someone has to be brought in to steady the ship as investors are waiting anxiously to see what would happen to the stock price once the dust settles.
Disclaimer: the views expressed here are of the author and do not reflect those of Groww.