On January 24, 2019, in the press release issued to announce the new managing director and chief executive officer (MD & CEO) of Yes Bank - Ravneet Gill, the outgoing chief Rana Kapoor was quoted as saying: “I am certain that his diverse, comprehensive experience as a career banker will provide significant confidence and conviction to all stakeholders including employees, customers and investors.”
Little did Gill know then that even his three decades of experience at Deutsche Bank as a career banker would not be sufficient to tame the beast called Yes Bank. Kapoor who wished him well in the new job had created an insurmountable task for him. The mess in the bank -- on account of years of loose lending and questionable management practices — was too deep. Gill had his task cut out — find an investor(s) to raise as much as $2 billion (around Rs15,000 crore) of survival capital for Yes.
Fresh hopes
When Gill stepped in, the mood within Yes Bank management was of high hope. With a new chief at helm, that was the second chapter in Yes Bank’s journey. The day Gill took charge as the new chief (Friday, March 1, 2019), Yes Bank’s shares were trading at Rs 237.50 apiece. The bank already witnessed some uneasy days following reports of bad loan divergence. In FY19 alone, the divergence was Rs 3,277 crore in bad loans and Rs 978 crore in NPA provisions. In October, 2018, the RBI denied an extension to Rana Kapoor to continue as MD & CEO of the bank. But, there were hopes that the arrival of a veteran banker could erase the bad memories of the past and the new capital would come in soon.
“Gill constantly talked to the senior management and assured that he will find investors no matter what it takes. But, the panic was visible,” said a banking analyst requesting anonymity. “There were a number of middle to senior level officers quitting the bank in the following months.”
Mounting stress
Yes bank’s earnings report card for the fourth quarter (Q4, FY19) was giving mixed signals. In the quarter gone by, the bank grew advances close to 19 percent. The retail advance portfolio inched up to 16.7 percent of the total loans compared with 12.2 percent in the year-ago period. Cheaper current and savings accounts, CASA, grew to 33.1 percent of total deposits. The bank created a contingency provision of Rs 2100 crore in the quarter after a review of its credit portfolio. The high provisions (nine times more than Y-O-Y) resulted in a net loss of Rs 1,507 crore in the fourth quarter of FY19. The Gross NPAs, at that quarter, was just 3.22 percent. Gill inherited a huge 66 percent corporate loan book. This was the real catch. There were murmurs that the reported bad loan figures were only a fraction of the actual stress in the Yes Bank balance sheet. A slowing economy was taking a toll on the repayment ability of companies in each passing quarter. The high proportion of corporate loans on Yes Bank’s books meant huge swings in NPAs even if one account goes bad. Gross slippages were Rs 3481 crore. Out of this, Rs 1,081 crore came from just two accounts, one an airline company and the other an infrastructure firm.
Six months later, by September, 2019, the Gross NPAs surged to over 7.39 percent and the bank reported fresh slippages of Rs 5,950 crore in the September quarter. Rating agencies and analysts cautioned that the actual GNPA ratios could be much more — at about 12 percent.
Where is the money?
In the September 2019 quarter results statement, Yes bank assured shareholders and analysts that it had received a binding offer from a global investor for an investment of $1.2 billion and had also received multiple other non-binding but strong bids from marquee Domestic and Global Institutional Investors and Family Offices. It turned out later that none of these were solid offers.
The $1.2-billion investment expected from Canadian investor Erwin Singh Braich and Hong Kong-based SPGP Holdings turned out to be a hoax. “The credentials of the Canadian investor were highly doubtful. There was no way the RBI could have approved of this theatrics. The question is how Gill and team could have even taken these guys seriously?” asked one analyst in Mumbai. In January, the bank said it had rejected the proposals from Braich.
“After this, the image of Gill as a rescuer took a major hit both within and outside the bank. There were hopes till then. But, not any longer,” said a banking consultant.
Gill’s biggest mistake, analysts say, was that he had made big promises in the beginning itself but with no follow-up actions. To be sure, Gill made all efforts to get capital, appeared to have big plans to get Yes Bank back on track but, things worsened to a point of no return. During his media interactions, the former Deutsche banker appeared confident about the prospective investors.
“This is important to understand that the bank has shown the ability to raise capital in the past place. YES Bank is confident of raising much more than $500 million,” Gill said in December, adding Yes Bank was in detailed discussions with other institutional investors as well.
The last blow
On January 10, the final blow on Gill’s plans at Yes Bank, perhaps, came when Uttam Agarwal - one of the independent directors and Head of bank’s audit committee - quit raising serious corporate governance issues. In a letter to the Securities and Exchange Board of India (SEBI), Agarwal accused Gill of lack of transparency in sharing updates on fundraising exercises to the Board.
Gill had to be reminded repeatedly for sharing information on the capital-raising plans and the term sheets he eventually shared lacked essential details, the letter alleges, adding that expressions of interest by three domestic investors were called as commitments. Agrawal’s allegations confirmed the fear in Yes Bank — no more money was coming. As the last ditch effort, Gill roped in his former boss at Deutsche, Anshu Jain, in February to raise the survival capital for Yes Bank. But, it was too late by then.
If Gill could turn the clock back, he would perhaps never have chosen the mess called Yes Bank. He will now be remembered for the Yes Bank debacle rather than three decades of success at Deutsche Bank.
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