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The Case of Yes Bank: From the Founders’ Dream to a Bank in Distress

Article  in  Journal of Advanced Research in Dynamical and Control Systems · February 2019

DOI: 10.5373/JARDCS/V11SP11/20193083

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Jour of Adv Research in Dynamical & Control Systems, Vol. 11, 11-Special Issue, 2019

The Case of Yes Bank: From the Founders’

Dream to a Bank in Distress
Dr. Thomason Rajan*, Associate Professor, MBA Department, Krupanidhi Group of Institutions, Bangalore.
E-mail: thomason.rajan@gmail.com
Abstract--- Yes Bank, an Indian private bank started its journey in 2003 under the leadership of three founders,
Rana Kapoor, Ashok Kapur and Harkirat Singh. Due to decisions taken by two founders and other tragic
circumstances, the reins of the bank ultimately landed with Rana. Using an aggressive approach, Rana was able to
build the bank’s loan business. But a family dispute, exposure to bad loans and RBI’s audit of the banks in India
eventually led to Yes Bank losing its sheen and Rana reducing his stake. The case covers multiple dimensions of the
bank’s journey.
Keywords--- Yes Bank, Bad Loans, Indian Banks, Rana Kapoor, Banking Stressed Assets, Founder Family
Conflicts.
AMS subject classifications number(s): 91C99

I. An Eventful Beginning
For Rana Kapoor, it was an audacious dream – to build a professional’s bank in India from scratch. Armed with
an economics degree from Delhi University and an MBA from New Jersey’s Rutgers University, Rana initially
interned in Citibank New York's IT department. Inspired by the glitz and glamour of new age banking, he really
hoped to build something similar in India (Dave, 2017). After working in Bank of America for 15 years followed by
two years with ANZ Grindlay's investment bank, in 1998, he started his entrepreneurial journey. He roped in in
colleagues Ashok Kapur and Harkirat Singh to help set up Dutch multinational banking firm Rabo Bank's Indian
operations (Karnik, 2017).
In 2003, the three partners applied for a licence from banking regulator Reserve Bank of India (RBI) to start a
bank. They set up Yes Bank with a capital of Rs. 200 crores (Dubey, 2015). When Harkirat was on a short vacation
out of India, a decision was taken to appoint Ashok as the non-executive chairman. In April 2003, Harkirat abruptly
quit the venture protesting against the decision (Bhoir, 2013).
In 2008, Ashok Kapur's life came to a tragic end when he was killed by terrorists in the Trident-Oberoi hotel
complex in Mumbai. Ashok had gone for dinner with his wife at the hotel’s restaurant. During the shooting, the
couple got separated and while he could not make it out alive, his wife Madhur Kapur survived as she was led out by
security officers with other guests (Business Standard, 2008). Since then, Rana Kapoor became the only one
remaining among the founder team to hold a leadership position at the bank.
Under Rana’s leadership, Yes Bank took small steps in building its corporate lending segment and focused on
sectors like real estate, pharmaceuticals, renewable energy, electricals and media. While Rana followed an
aggressive route to expand the loans division, he was also able to balance the wants of businesses with the bank's
need for prompt repayments. He used a simple strategy: provide big loans to those who asked for it but make
borrowers pay a very high fee upfront in the range of 2 to 10 percent of the sanctioned amount. He also charged
interest rates of up to 16 percent per annum, around 3 percent higher than the rates of competitors (Gopalan, 2019).
In 2015, Yes Bank launched a brand campaign titled ‘India bole YES (India says YES)’ which cost the bank Rs.
12 crores. The campaign was based on Nielsen Consumer Confidence Index which stated that Indians in general
were extremely positive about their future (Dutta, 2015). However, despite the marketing efforts, due to Indian
banking being largely trust based, Yes Bank struggled to grow its liabilities business and could only get a few bulk
deposits.

II. Building Momentum and Trouble

In 2010, RBI announced the deregulation of savings account deposit rates, removing the 4 percent cap on
savings account rate. In December 2011 Yes Bank announced a competitive 7 percent interest rate for savings
accounts deposits in order to attract more customers. The move helped - Yes Bank’s CASA (current account savings

DOI: 10.5373/JARDCS/V11SP11/20193083
ISSN 1943-023X 674
Received: 20 Sep 2019/Accepted: 16 Oct 2019
Jour of Adv Research in Dynamical & Control Systems, Vol. 11, 11-Special Issue, 2019

account) ratio grew from 10.3 percent in March 2011 to 15 percent by March 2012 and to 36.5 percent in March
2018 (Kumar, 2018).
To build a bank focused on the well-being of employees, Yes Bank attempted to map the goals of the
organization in alignment with the personal goals of its staff. To start with, an academic relationship program was
initiated to recruit bright talent directly from schools and colleges. Salaries offered were higher than the industry
average, helping the bank to source talented staff. Specific talent management programs were introduced that were
personalised yet necessary for the long-term interests of the bank. This included training for employees to work on
projects that were close to their heart, talent building exercises to help employees turn entrepreneurs and banking
plus financial services focused workshop sessions. Employees were incentivised to display entrepreneurial zeal and
also focus on innovation (Patnaik, 2011).
A year later, Rana announced a vision called Yes Bank Version 2.0- an ambitious goal of creating 900 branches
(from 150), 2,000 ATMs (from 94), and 12,750 employees (from 3,030) with a deposit base of Rs. 125,000 crores
(from Rs. 26,798 crores). This bold public statement was targeted at all the stakeholders of Yes Bank, making top
management responsible for the deliverables. (Mahanta, 2013).

III. The Crisis and its Aftermath

While the bank grew as planned, internal troubles were brewing at the promoter level. Since Ashok’s promoter
shareholding had been passed on to his family after his death, his wife Madhur initially proposed appointing their
daughter Shagun Gogia on the bank’s board. Rana opposed this appointment citing Gogia’s lack of experience. This
opposing stand was not only also accepted by Yes Bank’s board, as a retaliatory measure, the bank also wanted
Ashok family’s shareholding to be moved to non-promoter status (Nair, 2018).
In 2013, Ashok's family raised an issue with the bank about the rights which were jointly assigned to the Indian
Partners, namely Rana Kapoor and Ashok Kapur, as described in the bank’s Articles of Association. The family’s
argument was that the rights that belonged to Ashok, which also included a powerful clause to nominate three
directors jointly, be passed on to them.
The dispute went up to the Bombay High Court, which in 2015 issued an order that Ashok’s family could not
could be transformed into some sort of non-promoter capacity due to a partner’s demise, thereby upholding the view
that they enjoyed joint rights that belonged to the original partners. The order also discussed the option of both
promoters bringing down their shareholding to below 10 percent taking into account the bank’s long-term interests.
Rana was quick to state that that he will never sell his shares. (Dugal, 2018).
In September 2018, Rana Kapoor bought a residential building on Altamount Road in Mumbai next to Indian
billionaire Mukesh Ambani's 27-storey home Antilla for Rs. 128 crores (Sharma, 2018). Delhi-born Rana has had an
illustrious career as a banker and having built India's fourth-largest private bank, he had finally arrived. From 2018
to 2019, the bank had added 7.56 lakh new retail buyers and its bottom line had increased over 35 per cent annually
during financial year 2008-2018. (Shah, 2019).
The very same month, a whistle-blower raised allegations of irregularities in Yes Bank’s operations. The issues
raised included misclassification of bad loans and potential conflict of interests with respect to Rana Kapoor. The
bank’s audit committee engaged JLN US & Co. (JLN), a Vadodara-based auditor to independently examine the
matter, but JLN informed the board that it has not been able to prove some of the allegations raised by the whistle-
blower citing limited access to documents. JLN had access only to the data that was provided by the bank and was
unable to trace the transactions done by Rana’s family office (Gopakumar, 2019).
To add to the trouble, then came the after effects of RBI’s clean-up drive. In 2015, RBI had conducted its first
asset quality review (AQR) of banks to find corporate loan accounts having severe financial weakness that were
classified as standard accounts on the books of the lenders (Press Trust of India, 2019). The regulator forced Yes
Bank to disclose that non-performing loans were Rs. 4,930 crores, almost seven times more than the Rs. 750 crores
that the company reported in its audited accounts for the year ended in March 2016 (Roy and Kishore, 2017).
By the end of September 2018, the RBI refused to approve an additional three-year term for Rana Kapoor as the
chief executive, citing severe corporate governance issues. Deutsche Bank AG’s former India CEO Ravneet Gill
was brought in to replace Rana (Bloomberg, 2019).
As soon as Ravneet stepped in to take the role of the CEO, he initiated an exercise known as kitchen-sinking.
This is where a new chief executive officer displays all company related bad news upfront in order to gain flexibility

DOI: 10.5373/JARDCS/V11SP11/20193083
ISSN 1943-023X 675
Received: 20 Sep 2019/Accepted: 16 Oct 2019
Jour of Adv Research in Dynamical & Control Systems, Vol. 11, 11-Special Issue, 2019

over decisions that he/she makes in the future. Instead of drawing comfort and hope from the clean-up exercise
initiated by him, investors started really worrying about the bank’s covered up exposure to sectors and groups that
were going through troubles.
Around a sixth of the bank's loan book were linked to financial and real-estate firms, coincidentally the two
businesses facing the biggest funding squeezes in India. This included loans of $1.85 billion (around Rs. 11,100
crores) given to Anil Ambani’s telecom company that was undergoing bankruptcy and a $470 million exposure
(around Rs. 2820 crores) to Subhash Chandra Zee Entertainment Enterprises (Mukherjee, 2019), another company
facing financial difficulties. Yes Bank also reportedly had advanced loans of around Rs. 500 crores using a web of
small plantation companies to fund 12,000 acres of coffee estates owned by V. G. Siddhartha, founder of the Cafe
Coffee Day chain who passed away suddenly (Shukla, 2019).

Figure 1: Share Price Movements of Yes Bank from 2008 to 2019

Source: https://www.moneycontrol.com/india/stockpricequote/banks-private-sector/yesbank/YB, (Accessed 10-
11-2019)
The grapevine was that the bank’s exposure to troubled assets were almost at Rs 26,000 crore, an amount that
was significantly than the Rs 17,000 crore declared by the bank. The really disturbing part was that if the recovery
gets delayed, the entire net worth of the bank being around Rs 26,904 crore, could get wiped away (Dey, 2019).
Share prices of the bank also quickly reflected the broad events happening in the bank (see Figure 1). In
September 2018, investors saw a 40 per cent erosion in their wealth in one single week-the bank’s share price sank
from Rs. 318.50 to Rs. 184.45. There were two reasons attributed to this wipe-out.
On one hand, the bank had declared that it had not indulged in any type of window dressing of its corporate
accounts to conceal its non-performing assets (NPAs) and at the same time, there were other reports floating around
that Madhu Kapur, wife of late Yes Bank co-founder Ashok Kapur had sold around 0.04 per cent of her stake in the
bank (The Economic Times, 2018). A year later, the 2019 ‘kitchen sinking’ process also made YES Bank shares to
drop 30 percent, making investors of the bank lose another estimated Rs. 16,500 crores (Mudgill, 2019).
To bring the bank back to track and to boost investor sentiments, Ravneet and his team started considering
fundraising options. He initiated conversations with potential advisers for funds in the range of $500 million to $1
billion. Alternative options like selling global depository receipts as well as foreign currency convertible bonds were
also considered (Chaki and Dhanjal, 2019).
By May 2019, Yes Bank had reported stressed assets worth Rs. 10,000 crores, mainly from exposure to real
estate, entertainment and infrastructure sector-based corporate groups (Sinha, 2019). The bank's profits came down
from Rs. 4,224 crores in 2017-18 to Rs. 1,720 crores in 2018-19 (Adhikari, 2019). In a couple of months, the bank
also got the title of the world’s worst-performing lender in 2019 (Ghosh, 2019).
The same month, without any warning, the Reserve Bank of India also appointed R. Gandhi, a former central
bank deputy governor as an additional director on the Yes Bank board for a period of two years. RBI appointed
Gandhi under the Banking Regulation Act’s Section 36 AB, sub-section (1) which granted powers to the regulator to
appoint additional directors if it needs to protect the interest of the bank or its depositors (Gopakumar, 2019b). This
unusual move from the regulator was a clear signal that it wants to keep a close eye on the bank.
In 2019, Rana did something that he always said he would never do. Morgan Credits Pvt. Ltd, owned by Yes
Bank Ltd co-founder Rana Kapoor’s family, sold a 2.3% stake in the bank for Rs. 337 crores (The Economic Times,
2019). Yes Capital (India) Pvt Ltd, another promoter group company of the Bank, was forced to sell a 2.17% stake
in the Bank at discounted rates. One by one, Rana’s family shareholdings in YES Bank was sold at dismal price

DOI: 10.5373/JARDCS/V11SP11/20193083
ISSN 1943-023X 676
Received: 20 Sep 2019/Accepted: 16 Oct 2019
Jour of Adv Research in Dynamical & Control Systems, Vol. 11, 11-Special Issue, 2019

levels, in spite of he and his team's 15-year efforts to build a bank and create long-term shareholder value (Maya,
2019).
Discussion Question: Critically evaluate the multiple managerial dimensions in the Yes Bank case from
inception to infamy.

IV. Disclaimer
This case was prepared by the author for the sole purpose of aiding classroom discussion. Cases are not intended
to serve as endorsements, or sources of data, or illustrations of effective or ineffective management. Certain names
and information could have been disguised to maintain confidentiality.

Acknowledgement
The authors express their sincere gratitude to The Management, Krupanidhi Group of Institutions for providing
an International platform to showcase their research work through KRUPACON 2019 and extended support by
Accendere Knowledge Management Services, CL Educate Ltd.

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DOI: 10.5373/JARDCS/V11SP11/20193083
ISSN 1943-023X 677
Received: 20 Sep 2019/Accepted: 16 Oct 2019
 Jour of Adv Research in Dynamical & Control Systems, Vol. 11, 11-Special Issue, 2019

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DOI: 10.5373/JARDCS/V11SP11/20193083
ISSN 1943-023X 678
Received: 20 Sep 2019/Accepted: 16 Oct 2019

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