YES Bank's stressed loan portfolio: Understanding what went wrong at lender

The bank, in August, 2021 invited applications for setting up an ARC, planning to hold a 20 per cent stake in it. On the RBI's objection, it agreed to hold a minority stake in the ARC

YES Bank said on Friday it has signed an agreement with JCF ARC LLC and JC Flowers Asset Reconstruction (JC Flowers ARC) for a partnership to sell the private lender’s stressed assets estimated worth Rs 48,000 crore.

The bank, in August, 2021 invited applications for setting up an ARC, planning to hold 20 per cent stake in it. On the Reserve Bank of India's (RBI) objection, it agreed to hold a minority stake in the entity.

What went wrong at YES Bank?

The bank was launched on January 21, 2004, by Rana Kapur and his brother-in-law, Ashok Kapoor. In 2005, the bank went public. Ashok died in the 2008 Mumbai terror attacks. Rana Kapur managed the bank as its CEO after 2008.

In 2014, the gross non-performing assets (NPAs) of the bank stood at 0.31 per cent. In 2017, the bank was included in the BSE's benchmark index, Sensex. It was valued at over Rs 1 trillion.

The RBI in 2014 started a clean-up of the banking sector and started identifying the NPAs of lenders. It was when the crisis at YES Bank came to light.

RBI found out that YES Bank's reported of NPAs and the central bank’s estimates didn’t match. The lender was giving out loans to companies that were already under stress, like Anil Ambani group, and Dewan Housing Finance Corporation Ltd (DHFL). The bank was asked to admit more NPAs to its balance sheet.

However, the crisis spread after YES customers started withdrawing their deposits. Tirupati temple trust, one of the biggest depositors of the bank, withdrew Rs 1,300 crore in 2019. According to a report by the Indian Express, depositors withdrew Rs 18,000 crore from the bank between March 2019 and September 2019. Rana Kapur stepped down as CEO in January 2019.

On March 5, 2020, the RBI superseded the bank's Board of Directors and capped the withdrawals to Rs 50,000. It also asked the State Bank of India (SBI) to get a 49 per cent stake in the bank for restructuring it.

RBI also appointed Prashant Kumar, a former senior executive at SBI, as an administrator at YES Bank. He later became the bank's CEO on March 6, 2020.

The SBI holds 49 per cent of YES Bank and has appointed JCF ARC LLC and JC Flowers Asset Reconstruction Private Limited (JC Flowers ARC) to help it sell the bad loans.