In 2003, Rana Kapoor, a veteran banker, returned to India after stints in foreign banks. Having ambitious plans, Kapoor secured a banking licence in 2004. Yes Bank's books were rapidly bolstered after it rode the wave of high-leveraged bulky corporate loans and wholesale deposits.
Kapoor apparently never said no to anyone who approached him for a loan. But there was a rider. He insisted on high upfront fees from the loan amount. This boosted the bank's revenues and its loan book became inflated. But that also paved the way for a future disaster.
An (over)confident banker
Kapoor was always sure about his business decisions and carried a demeanour that made it impossible for him to say 'no' to anyone who approached Yes Bank for a corporate loan. In hindsight, banking analysts say if Kapoor had said 'no' at a time the bank was sailing into uncharted waters, Yes Bank would not have become a 'No Bank' today!
Yes Bank once represented a tech-savvy new age private bank. Its fall from grace into a zombie bank whose survival depended on government intervention is tied to Kapoor’s absolute control — when he was in control — to never allow anyone questions his lending decisions in Yes Bank.
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Those decisions triggered a precipitous increase in its bad loans and eventually deteriorated finances at India’s fifth-biggest private lender, according to banking analysts.
After the death of Ashok Kapur, the non-executive chairman of Yes Bank in the 26/11 terror attack in 2008, Kapoor embarked on an aggressive path and decided most of the loan approvals according to his discretion.
According to a senior banker who was Kapoor's competitor, prudential norms for corporate loans were openly flouted by Kapoor to gain quick fee income and show a bigger loan book. Kapoor hardly paid attention to the management and board and made most of the decisions himself.
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"This went on in the following years. The market was abuzz with an impending collapse of Yes Bank sooner or later," said the banker.
While Kapoor loved rocket-speed growth, he never had the patience to build safer retail loans and cheaper deposits that would have gifted Yes bank a different destiny. The problem with high reliance on corporate loans was that the game could turn either side even with the slightest failure.
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At the time of the collapse, Yes Bank had 62 percent of its loan book from high-value corporate loans, retail loans and loans to small companies less than 20 percent each and over Rs 30,000 crore stressed assets. Where Kapoor went wrong was he bet big on 'good days' but did not prepare for the bad days.
When bad days finally came, the bank got stuck with a bunch of risky accounts such as DHFL, Essar, IL&FS and the Anil Ambani companies. The problem became too big to solve.
According to the last available figures on the bank's site, Yes Bank has gross NPAs of 7.4 percent but Moody's had put the actual NPAs anywhere above 12 percent, considering the hidden stress in its books. These unflattering numbers would surface by March when the latest numbers are out. The capital position has weakened significantly since then.
Kapoor always loved being in the limelight and even knew many journalists covering the banking sector by their names. In 2013, when this writer met him for an interview for a newspaper at the bank’s Mumbai office, Kapoor said:
"It is not fashionable to raise capital when you are already equipped with capital." Kapoor had said this when he was asked about Yes Bank’s capital raising plans abroad.
According to Kapoor, the bank believed in retaining about 84 percent of earnings.
"We are right now funding our growth from profit retention," he had said.
It is an irony that half a decade later, the bank he set up collapsed with an unquenchable thirst for survival capital, not even growth capital.
Simultaneously, Kapoor built a larger-than-life image for himself, organising big conferences. Kapoor's link with a certain political party was an open secret in banking circles.
But the overreliance on bulky corporate loans to grow the bank’s books would bite when the economic downturn began after 2014-15.
High on talk, low on action
Kapoor's words and actions didn't often match. He once proudly described Yes Bank shares as “diamonds” that are forever. Kapoor said he will not sell his diamonds referring his Yes bank stake and will eventually pass on his stakeholding in the bank to his daughters.
That created quite a stir in the social media and probably gave more confidence to retailers to buy shares of the bank. It is another matter that he eventually sold his entire stake in the bank, leaving investors shell-shocked.
Sixteen years after he co-founded Yes Bank, the entity is in a shambles. After the RBI clampdown on Yes Bank, Kapoor reportedly told media that he no longer knows the state of affairs in Yes Bank and blamed part-time chairman Brahm Dutt and CEO Ravneet Gill for the pitiable state of the bank.
Truth is, if Kapoor's 'diamonds' have turned to dust, he only has himself to blame.