While the Yes Bank co-founder was quick to sell his 'diamonds,' the bank continues to suffer.
The speed in which Rana Kapoor had to eat his own words, was telling.
On September 28, 2018, the then MD & CEO of Yes bank proudly declared that he would never sell shares of the bank he had co-founded in 2003.
"Diamonds are forever," said Kapoor, taking a potshot at Madhu Kapur, who had sold some of her stake in the bank.
Madhu is wife of the late Yes Bank co-founder Ashok Kapur.
"I will eventually bequeath my @YESBANK promoter shares to my three daughters and subsequently to their children, with a request in my Will stating not to sell a single share," Kapoor had tweeted.
The bravado came despite the bank's stock losing about 40 percent in the previous week. On that day, September 28, the stock ended down 10 percent, at Rs 183 a share. Kapoor and his family held 10.66 per cent stake.
The erosion in the bank's stock had followed the Reserve Bank of India cutting short Kapoor's term, to January 31, 2019. But as the date neared, the market and investors seemed to be looking forward to Kapoor's exit. By the time Kapoor finally moved out, Yes Bank's shares had crossed Rs 200 a share. On January 31, they closed at Rs 194.30.
Unfortunately, Yes Bank continued to suffer. In September 2019, nearly a year after his famous ‘diamond’ comment, Kapoor started selling his stake in the company. The stock was down to around Rs 50 a share level.
The former banker sold the remaining stake, but for 900 shares, in two months, perhaps making the most of a marginal climb in the stock, which was now at about Rs 63 levels.
Over the next few months, his successor Ravneet Gill would try his best to get investors and infuse some much needed cash in Yes Bank. The bank simply didn’t have enough cash to cover its NPAs. But when each deadline to raise funds got extended, the bank’s shares took a beating.
It ended 2019, at Rs 46.95 a share, lost nearly 20 percent over the next month, and by February 28, Yes Bank shares were at Rs 34. On March 06, a day after the RBI said it was superseding the board of Yes Bank, the lender’s stock was down to Rs 16.20.
The diamonds had not just lost their sheen, but now looked paler than the fakes that Nirav Modi infamously conned buyers into buying. Yes Bank investors have been left with nothing but hopes that RBI, along with SBI and LIC, is able to turnaround the bank, which was hailed as the torchbearer of New Age banking.
Yes Bank had listed in 2005, at a price of 45 a share, and Kapoor's eyes were firmly at the top of Indian banking.
And Kapoor, a former Bank of America veteran who along with Kapur sold their stakes in a profitable NBFC to set up Yes Bank, went about building the business in a 'ruthless way', added another executive from the industry who had a stint at Yes Bank.
"As long as Yes Bank was concerned, the buck started and stopped with Rana Kapoor. He was firmly in control of the bank,” said the executive.
The control, said industry insiders, saw Kapoor leading the way in bringing in new deals, often re-writing the rules. One executive recalls an incident, where an infrastructure company wanted to raise money to fund a new project. When he was struggling to raise funds, someone advised him: "If you get an appointment with Rana Kapoor, your work could be done."
"It was the year-end. While Kapoor agreed to lend the infrastructure company about Rs 400 crore, he managed to charge a processing fee of six percent, which was unheard of. This would have surely helped him shore up the numbers,” says the executive. A report by Outlook recollected a similar incident involving a shipping company.
What however confounded the industry was Kapoor's ability to keep Yes Bank's NPAs at low levels, despite a high proportion of risky corporate loans in its books. But few dared to question the man, who was known to evoke fear among colleagues.
"He is said to have prevented a colleague from joining the competition by filing a complaint at the RBI," said a former employee of Yes Bank.
Kapoor enjoyed the limelight, and won several awards. In 2017, Kapoor became a billionaire. In 2018, said Forbes India Rich List, he was the second richest self-made banker, second only to Uday Kotak, the Vice-Chairman and Managing Director of Kotak Mahindra Bank.
In less than 12 years, Kapoor was nearly at the top.
The halo didn't last for long. After the RBI brought in stricter assessment norms, Kapoor was forced to reveal the true picture of Yes Bank’s loans.
For the fiscal 2016-2017, Yes Bank reported a divergence in gross bad loans of Rs 6,355 crore. In other words, while the bank had announced NPAs of Rs 2,018 crore, RBI's assessment revealed the number to be much higher at Rs 8,373 crore.
Skeletons started stumbling out after the IL&FS episode exploded. Yes Bank, in the fourth quarter of the 2019 financial year, classified Rs 2,442 crore loan to the infrastructure group as NPA.
The bank's name cropped up nearly every time there was a default on payment. The lender had exposure to DHFL, Cox & Kings, CG Power and McLeod Russel. In nearly every case, Yes Bank's share of the bad loans was higher than most of its peers. It was not a coincidence.
It was of no surprise that the regulator had to step in, as it became clear that Kapoor was not going to leave his chair at Yes Bank, despite a trail of poor results and financial stress. Kapoor, whose last term as Yes Bank MD & CEO had gotten over in August 2018, was hoping for a three-year extension. Instead, RBI gave him five months to exit the bank.
A little over a year later, RBI has had to step in again, this time to take control of Yes Bank, and launch a rescue act."I have no clue," Kapoor is said to have told Business Today, when asked about RBI's takeover of his former bank.