The Rise and Fall of Yes Bank: A Cautionary Tale of Greed and Governance
Yes Bank, once known as one of the leading and most successful private banks in India, experienced a meteoric rise in its loan portfolio over the years. However, its sudden fall attributed to greed and poor governance serves as a significant cautionary tale for the Indian banking sector and investors alike. This article explores the history, the factors leading to its downfall, and the journey towards recovery.
The Background: A Long Journey of Growth
Yes Bank was established in 2002 with an initial loan book of zero. Over the next 15 years, the bank steadily grew, eventually reaching a loan portfolio of nearly 1.60 lakh crore by 2017. This marked the beginning of the bank's rapid rise, which, unfortunately, was not embraced with the same prudent measures as its previous growth.
The Tragic Downfall: Greed and Poor Governance
Behind the rapid growth lay the hands of Yes Bank's founder and largest shareholder, Rana Kapoor, and his cousin. They adopted a reckless approach to lending, targeting financially deteriorating corporations without any regard for their stability. The key reason for this risky behavior was the promise of a negotiated percentage of the loan amount that would directly benefit the Kapoor family, bypassing the bank's coffers.
Between 2017 and December 2018, this predatory lending strategy led to a significant expansion of Yes Bank's loan portfolio, growing from 1.60 lakh crore to 2.40 lakh crore. However, the loans extended to these distressed corporates were problematic from the outset. Not only did these loans fail to provide any capital or interest repayment, but Rana Kapoor and his associates were fully aware of this from the start.
The Escalation of the Crisis
The culmination of these practices led to a severe crisis of non-performing assets (NPAs). As market influencers began to devalue the stock, the price of Yes Bank's shares fell to as low as Rs. 1. Investor panic ensued, leading to a wave of selling. This situation created a vicious cycle as no buyers were available, and nervous big investors started accumulating shares at rock-bottom prices to benefit from potential future gains.
Government Intervention and the Path to Revival
In response to these developments, the Indian government took swift action. Rana Kapoor and his daughter were spotted at an airport attempting to flee the country but were detained. Subsequently, State Bank of India (SBI) took control of Yes Bank, with the hope that the bank can be revived within a few months. This intervention was seen as a crucial step in turning around the bank's fortunes.
Market Perception and Future Prospects
With the government's intervention and SBI's support, the stock price of Yes Bank has shown signs of an upward move. Investor sentiment has improved, and big investors are now likely to hold their shares, offloading their positions to retail investors. This trend suggests a potential transfer of losses from big investors to retail investors, who may buy the shares at a premium, expecting a rise in value.
However, it remains to be seen whether the market perspective will indeed turn positive. Only time will tell if Yes Bank can truly recover and regain its former glory.
Conclusion
The rise and fall of Yes Bank is a stark reminder of the risks associated with greed and poor governance in the financial industry. It offers valuable lessons for both regulators and investors, emphasizing the need for stricter controls and prudent management practices. The future of Yes Bank remains uncertain, but with government support and strategic interventions, there is a glimmer of hope for its revival.