Yes Bank- Case Study Analysis


This study traces out the genesis of Yes bank Crises and the reasons for downfall of a major Indian Bank. This recent exceptional case has reached its epitome in terms of recovery though, but studying on this case will help me to understand the mindset of the bank to engage into dialogues with some soon to be bankrupt companies and acting as their sole survivor without taking into consideration its own balances. Incorporated in 2004, Yes Bank was founded by Rana Kapoor who headed the bank till 2018. His other co-founder — Ashok Kapoor suffered demise during the 26/11 attacks in Mumbai. Since its inception, YES BANK has adopted international best practices, with the highest standards of service quality and operational excellence. It offers comprehensive banking and financial solutions to all its customers. Using technology to provide superior customer service is central to YES BANK’s business philosophy. By offering innovations such as mobile banking, two-factor authentication, radio-frequency identification and advanced speech-enabled interactive voice-response systems, YES BANK delivers a differentiated service to its commercial and retail customers.
YES bank turned out to be the go-to bank for a lot of companies which relies on private banks for their funds. They acquired many clients for all operations and it was the only banking partner for UPI transactions such as Swiggy, Phone pe, Flipkart, Red bus, etc for more than 20 companies. Looking at the growth of the bank, people started depositing more and more, essentially, this valued to 2 lakh crores for the bank. YES bank attained its peak and the highest confidence among depositors and rating agencies.
Reasons for Downfall of Yes Bank
But, as soon as the bank reached its peak of success, the bank (owing to the overwhelming response they received) started lending billions to companies. However, some of their clients were already under financial stress — these included Dewan Housing Finance Corp. Ltd (DHFL), Infrastructure Leasing and Financial Services (IL&FS), Anil Ambani’s Reliance group, the Zee group, and Subhash Chandra’s Essel group etc. and most of these companies really had no way to pay their debts back to the bank and were in no way the safe investments. Though, UBS analysed the blind approach by the bank that is leading to such a massive growth, but only temporary. But even after such warnings Yes Bank failed to control its mess of risky decisions. A lot of questions were raised as to why the financial assistance was given to these companies.

After months of investigation, on March 5 2020, the Reserve Bank of India announced the order to it supersedes the Yes Bank Board of Directors for a period of 30 days “owing to serious deterioration in the financial position of the Bank”. Within a month of Ravneet Gill taking over as head of Yes Bank on March 2019 it was estimated that their NPA was standing at 8%. This gave the picture that eight percent of all loans given out by Yes bank were Bad loans and hence they also downgraded them.

Analysis of problems and learnings from the case:

Soon the bank was at its peak but every investor felt something suspicious with such high numbers and finally in 2017, RBI sensed a problem with this bank and started monitoring over its governance issues and finally pointed out that Bank was hiding its actual NPAs. It was promptly caught by the RBI in 2015, 2016 and also in 2017 which involved the RBI directing Yes bank along with several other banks to report transparently. The bad or unrecoverable loans given out by Yes Bank stood at Rs 50,396 crores as of September 2019. With news of Yes Bank shares tumbling with over 85% downfall and founders accused of money laundering, made Yes Bank hard to be recognized as the same bank that once attracted so many retail and veteran investors. The fact that the lender ended up at the resolution stage, without ever being placed under the central bank’s Prompt Corrective Action (PCA) framework, also raises a question mark over how and why Yes Bank eluded the specifically tailor-made solution to address weakness at banks.