Fast growth to quick fall: The story of Yes Bank's changing fortunes

Yes Bank has been put under moratorium and may have to take a government-planned bailout.

The YES Bank board has been superseded by the Reserve Bank of India (RBI) and the private lender has become the target of a forced bailout, given the huge bad debt level in its corporate and real estate portfolios. This is in contrast to a few years ago, when it was the fastest-growing bank.
 
The lender took more risks compared to its peers, say bankers. “Even when other private sector banks would reject loans to corporate clients, it was  YES Bank that came to their rescue,” said a former executive.
 

Hence, it was not a surprise that the bank built a portfolio of bad loans to corporations. Companies that failed to repay loans include Dewan Housing Finance, Essel group, CG Power, Anil Ambani group, and Videocon.
 
Earlier this week, Reliance Infrastructure said it had defaulted on interest and principal payments on a Rs 3,600-crore loan to YES Bank.
 

Since the founder and former CEO Rana Kapoor was forced to exit the bank by the RBI in January last year, new CEO Ravneet Gill — hired from Deutsche Bank — was tasked with reviving the bank. However, Gill failed to bring any respectable investor on board, even as several names were linked from Microsoft and Paytm to JC Flowers and Tilden Park Capital. On the contrary, one of the potential investors turned out to be as bizarre as a man who had filed for bankruptcy in Canada.

Since the founder and former CEO Rana Kapoor (left) was forced to exit the bank by the RBI in January last year, new CEO Ravneet Gill — hired from Deutsche Bank — was tasked with reviving the bank. However, Gill failed to bring any respectable invest

“None of the investors saw any value even as its management went around soliciting investors,” said an analyst.

The crisis in slow motion, however, helped several insiders exit the company’s stock. Rana Kapoor had famously tweeted that YES Bank’s shares were as good as “diamonds”, and that he would never sell and bequeath the “diamonds” to his children. However, Kapoor’s shares — a lot of which were pledged — were sold by lenders as share prices tanked.
 
By November 2019, Kapoor sold his remaining 0.8 per cent stake when the stock was trading at Rs 64 a share. On Thursday, the stock closed at Rs 37 — up 26 per cent following unconfirmed reports that State Bank of India was taking over the bank. It was at its peak of Rs 383 in August 2018.

JPMorgan said that following the “forced” bailout, investors would likely want the bank to be acquired at near-zero value, to account for risks associated with the stress book and likely loss in deposits.
 
“In sum, we think the bank needs to be recapitalised at nominal equity value, and could test dilution of additional tier-1 (AT1s),” said JPMorgan analysts in a note on Thursday, while cutting the bank’s target price to Rs 1.

Analysts said YES Bank failed to get any marquee foreign investor given the uncertainties around asset quality, which had been plaguing the bank for at least a year.
 
With a gross non-performing asset ratio of 7.4 per cent, YES Bank’s asset quality is the weakest among top private banks.
 

In its inspection report of 2019, the RBI had found Rs 3,277 crore of divergence in non-performing assets, which would keep provisioning costs higher in the ensuing quarters. The lender has still not announced its December quarter (Q3) results, and a board meeting was scheduled for March 14 to consider its Q3 results, before the RBI superseded the bank’s board.
 
In November, Moody’s had warned that the bank had close to Rs 31,400 crore in additional loans and investments (about 10.4 per cent of YES Bank’s total loans and investments), which are rated below-investment grade. About 40 per cent of loans may turn debt, it warned.
 
The slowdown in commercial real estate further eroded the asset quality as the bank had a sizeable exposure to weaker companies in the sector.
 
As of September 2019, its exposure to housing finance companies and non-banking financial companies represented 6 per cent of its total exposure to the property sector. At the same time, the lender had 7.2 per cent direct exposure to the commercial and residential real estate sector.