How to bust a bank

How to bust a bank

Rana Kapoor was not part of the banking license plan when Ashok Kapur and Harkirat Singh drafted a new generation YES bank. The two had been colleagues at Grindlays Bank and knew each other personally, professionally and socially. Kapur probably sneaked into the relatively younger Rana, his co-brother-in-law (her women were sisters) as co-promoters. Singh knew neither personally nor otherwise of Rana, while Kapur carefully hid the fact that they were related. The establishment of a public trust institution was therefore based on a tactical omission.

Independently of this, the trio, which was granted a “basic” license from the Reserve Bank of India (RBI) in 2003, founded the private bank from scratch in 2004. Singh left the company within a year, claiming that Rana and Kapur had teamed up with him. In 2005, YES Bank successfully raised capital of 355 billion rupees through an initial public offering, each with a value of 45 billion rupees. The next step was to find a sustainable business model. Both Kapur and Rana knew that public sector banks were on the way to losing market share. Retail banking was the taste of the season. The top banks – ICICI, HDFC and SBI – vied for space for home loans, auto loans and credit cards. “Corporate banking was a natural choice for us due to the lack of large capital for retail banking,” said Rana once. Corporate banking was also an area in which he had sufficient expertise due to his more than 15 years of experience with Bank of America and ANZ Grindlay’s investment banking.

By 2008/09, the small bank had a balance sheet of 22,900 billion rupees and a credit book of 12,403 billion rupees. Then, during the November 26 terrorist attacks in Mumbai, Ashok Kapur experienced a sudden and unfortunate death, and the bank fell into the lap of the less experienced Rana. Under him, YES Bank’s loan book grew tenfold to 2.41 billion rupees from 22.193 billion rupees in the decade 2009/19.

And then autumn came. The alarm bells had been ringing for a while. Deviations in non-performing assets (NPA) have been noted in the bank’s books for three years. The over-risk against stressed companies was enormous, there were corporate governance problems and compliance errors. In September 2018, RBI limited Rana to January 2019. Two months later, the global rating agency Moody’s Investors Services downgraded the ratings of some of the bank’s instruments. Finally, in March of this year, the central bank intervened, replaced the board of directors and appointed the State Bank of India the white knight to save the private bank.

How did such a pass come about? With an asset size of Rs 3 Lakh Crore, the hole in the bank’s balance sheet is huge. The estimated stressed loan is over 50,000 rupees. The bank’s market capitalization has dropped to less than 5,000 rupees. Deposits of Rs 2 lakh crore run the risk of being wiped out.

Family affairs: Rana Kapoor with his daughter Rakhee in their residence in Mumbai. (Photo: Mandar Deodhar)

When this reporter called Rana over the phone a few hours before he was arrested, his cryptic one-line answer was, “I left the bank in January last year, so I don’t really know.” But there is no doubt that he knew what was coming as Rana was the only founder left after Ashok Kapur’s death in 2008 and has been the bank’s CEO and CEO since its inception. Where did he go wrong?


His grandfather in the jewelry trade, his father a pilot, that had always been good for bright Rana. As an Xfapsian, as the alumni of the Frank Anthony Public School in Delhi are called, he secured admission to the coveted Shri Ram College of Commerce (SRCC) and then an MBA from Rutgers University. When he returned, he was flooded with offers, but wanted to join a foreign bank. He worked at Bank of America for almost a decade and a half before joining ANZ Grindlays in the mid-1990s. While the Grindlays stay lasted a few years, a well-connected Rana convinced the Dutch-based Rabo Bank to settle in India. As head of the Indian office, Rana advised Tana Tea on the takeover of the UK-based global tea major Tetley on one of the largest cross-border deals valued at 1,870 billion rupees. It brought Rana into the big league.

The nerve center: The corporate headquarters of YES Bank in Mumbai. (Photo: Rachit Goswami)

He always had ambition in abundance. And Rana recognized it both inside and outside the bank he founded. In the CEO’s address to shareholders in YES Bank’s 2005/06 annual report, he said: “We are committed to pursuing the highest standards of professional integrity, ethical standards, the highest levels of compliance and the strictest corporate governance standards.”

After Ashok Kapur’s death, Rana had a free hand. “It was a perfect CEO capture of the board,” says an experienced director. “The independent directors are appointed at the whim of management,” said Uttam Agarwal, a shareholder director who left YES Bank in January this year on governance issues. Many others, including Debjani Ghosh, Subhash Chander Kalia and Ashok Chawla, had previously left for personal or other reasons. The bank had no stable chairman after Kapur’s death.

In the six years after Kapur, Rana released a manic energy by setting annual goals. Each new employee was asked to add a fixed number of checking accounts. “He was a tough master and ruthless when it came to performance,” says a former employee. The results showed. Rana managed to increase the balance sheet size to an astonishing 136.170 billion rupees and a credit book of 75.550 billion rupees by 2014/15. The bank’s gross NPAs also increased, but were still only 0.41 percent. Kotak Bank, which was converted from a non-bank finance company (NBFC) to a bank in 2003, had a balance sheet of 106,012 rupees and a credit book of 66,161 rupees until 2014-15.

In the meantime, Rana began to profile itself as an industry leader and deal with politicians. His purchase from M.F. One such example was Husain’s portrait of Rajiv Gandhi for Rs 2 crore by Priyanka Gandhi-Vadra in 2010. In July 2013, he became President of the Associated Chambers of Commerce and Industry (Assocham). When the centre’s government changed in May 2014, Rana quickly switched sides. He congratulated the new Prime Minister Narendra Modi in his capacity as President of Assocham and said Indian voters have marginalized so-called kingmakers. “He sent the strong message that the country cannot be made vulnerable to the close-approach policy that took a toll.” on the economy and the national image “.

The Assocham stint brought Rana closer to industry and government routes. Many insiders saw him as a risk taker, and in fact, Rana didn’t mind betting on stressed companies as long as he got a little more interest and good security. As a golf enthusiast, he would deal directly with most of the organizers. “As soon as a deal was closed, bank employees started their due diligence, but loans were never refused due to the associated risk,” said Kenner. Many overfunded companies – including the Reliance ADAG Group, DHFL, HDIL, the ESSEL Group, the Cafe Coffee Day and Jet Airways – knocked on his door for money. In response, the Reliance ADAG Group, with the highest commitment, stated that it was obliged to repay all of its loans through its various asset monetization programs. Meanwhile, the Enforcement Directorate (ED) is investigating Rana in the DHFL case, where he allegedly granted rupees 3,700 billion in return for rupees 600 billion to family-owned companies. In total, according to the ED, 5,000 rupees kickback money went into shell companies, which included Rana’s wife Bindu Kapoor and his three daughters Radha Kapoor Khanna, Rakhee Kapoor Tandon and Roshni Kapoor.


The RBI guidelines, which oblige private bank sponsors to dilute their stake to 15 percent in 15 years, may force them to satisfy their entrepreneurial drive elsewhere or to build businesses that they own and can pass on to their children. Rana cleaned his daughters to become an entrepreneur. The oldest, Radha, was held responsible for DoIT Creations, a company that led companies from dry cleaning and laundry of designer clothing to a Parson’s Design School design school in the United States, sports management, media, education and entertainment. His second daughter, Rakhee, worked briefly as a business manager for strategic initiatives. The main companies that financed the family businesses were Morgan Credit and Yes Capital, of which all three subsidiaries (including the youngest Roshni, who was excluded from flying to London last week) each hold 33.35 percent. Both companies together with Rana’s personal stake held a 12 percent stake in the bank.

According to the ED, the Kapoor family plowed all the money they allegedly received as a setback into first-class properties in Mumbai and Delhi. Rana even jumped onto a plot of land next to Mukesh Ambanis Antilla on Altamount Road in Mumbai just 18 months ago. These properties were held under a holding company, RAB Enterprises.


As Rana’s stature and control over the bank increased, the family of his late co-founder, who held a 12 percent stake in the bank, was repeatedly put out of action. Rana had a free rein in the appointment of board members, but denied this to Ashok Kapur’s family when, according to the statutes, they had the common right as Indian partners to appoint three directors to the board. Rana led a brief spate of letters and meetings with Madhu Kapur that her daughter Shagun Gogia wanted on the bank’s board of directors, but ultimately declined, saying that she did not have the “relevant experience and expertise” to contribute to what he claimed was a professionally managed bank. The duo also knocked on the doors of friends and relatives, but to no avail.

Capital home: Rana Kapoor’s residence in Delhi on Amrita Sher-gil Marg. (Photo: Shekhar Ghosh)

Finally, in 2013, Madhu turned to the courts. “Rana Uncle made this a modern Mahabharata,” Shagun had accused. In the chaotic battle, many in the industry sympathized with the mother-daughter duo. The judge hearing the matter, judge S.J. Kathawala was amazed when his residence was flooded with Assocham newsletters. “Please tell your client not to send me this newsletter. There are more pictures of him with the Prime Minister and other ministers than anything relevant to reading,” the judge told Rana’s lawyer.

The court battle gave the markets the first hint of Rana’s authoritarian ways. Skeletons fell out of the closet at YES Bank when his sister-in-law began to address corporate governance issues. Fees included how Bank Ranas provided the home address for the family businesses. The lawsuit finally went in Madhu and Shagun’s favor.


The messy lawsuit took a toll on Rana’s image, but had left the bank untouched. Your problems came from other sides. Initially, YES Bank did not have a very strong funding profile. Low-cost deposits, the bread and butter of each bank, were only 20 percent compared to the generally accepted 40-45 percent. The expansion of the private customer business remained on the drawing board.

In a challenging economic environment characterized by interventions such as the Bankruptcy and Bankruptcy Act, the demonstration and the hurried introduction of the tax on goods and services, the bank began to rely on the Indian company and many stressed companies in the real estate sector, Construction and energy and NBFC sectors. For example, the bank’s exposure to real estate amounted to 24,000 rupees.

The dam burst in 2015-16 when RBI Governor Raghuram Rajan commissioned an asset quality review that raised several NPA differences in YES Bank’s books. They reached 2,299 crore for the GJ 16 Rs, 6,355 crore for the GJ 18 and 3,177 crore for the GJ 19 Rs.

In September 2016, Rana launched a billion dollar QIP (Quantified Institutional Placement) to dilute 10 percent of the bank’s equity. However, due to weak demand, the problem had to be postponed at the last minute. The share price has not recovered since then.

In November 2018, Moody’s downgraded several instruments from YES Bank and referred to uncertainties in connection with the change in management from the founding professional Rana to a pure professional. There was also uncertainty about the bank’s ability to raise future capital in order to maintain the high credit growth record of the past.

Who failed the bank?

So the YES Bank was an accident waiting to be passed. The fact that the NPA divergences have existed for three years makes the bank’s first custodian visible – its internal and external auditors. Like bank management, they failed to assess the actual status of the bank’s NPAs. The auditor should have noticed a deterioration in the value of the collateral, the financial position of the borrowers and the cash flows.

The bank’s board of directors also remained silent as long as Rana brought high growth and profitability to the bank. In his resignation letter, Uttam Agarwal had expressed concerns about deterioration in corporate governance, compliance errors, and improper management practices under the new leadership of Ravneet Gill. But those were things that the board should have examined under Rana’s term. The man, whom Forbes once described as India’s second richest homemade banker, clearly left a very vulnerable bank in the hands of someone who had no idea how deep the rot was. After three decades at Deutsche Bank, Gill, the new managing director and CEO, was unable to deliver. This was when the RBI sent its former deputy governor, R. Gandhi, to better monitor the bank.

(Photo by: Milind Shelte)

The news was still bad. It was found that YES Bank has problems on both fronts. New NPAs even emerged from accounts outside of the “watch list” of likely NPAs. And the watchlist itself, which includes low-rated loans, had grown to 30,000 rupees in September 2019. The bank’s gross NPAs more than doubled from 3.22 percent in March 2019 to 7.39 percent (17,134 rupees) in September 2019.

There were also problems in raising fresh capital that the bank desperately needed to meet RBI’s regulatory standards. For example, RBI’s core capital requirements are 8 percent – the number of YES Banks was borderline at 8.6 percent. The bank had repeatedly assured the RBI that it would raise more capital – and actually raised a tranche of 1,800 rupees. Then, in November 2019, she announced that she had found investors who were willing to raise up to $ 2 billion. Gill announced that the funds would be raised by December 2019. But nothing came of it. The names of several major investors – JC Flower, Tilden Park and Oak Hill Advisors – made the round after the bank announced that it had received expressions of interest from these companies. In fact, the bank postponed third-quarter earnings until it raised capital. But no capital was raised here either, although some of these investors had discussions with RBI. It is likely that they were not convinced of the quality of the bank’s assets. Soon after, RBI decided to take over YES Bank.


The ED’s nine-page investigation request describes the process by which YES Bank extended the loan to Dewan Housing, which in turn granted a rupee of 600 billion rupees to DoIt Urban Ventures Pvt Ltd (DUVPL), family-run by Kapoor . “Kapil Wadhawan of Dewan Housing paid Rana Kapoor and his family members a setback of 600 rupees in the guise of a construction loan,” the investigation said. It goes on to say that “Loans of more than 20,000 rupees sanctioned during Kapoor’s tenure have become NPAs. Irregularity / consideration / redirection sanctioning of these loans is under investigation.”

SBI’s accession is a glimmer of hope for depositors, but will continue to look at YES Bank’s third quarter results on March 14. You are likely to see the extent of capital and NPA losses in the December quarter. The SBI is ready to invest 10,000 rupees alone, but efforts are being made to bring new investors on board. YES Bank needs between 15,000 and 20,000 rupees to provide NPAs and expand the book. This includes retail diversification. But the biggest challenge would be to keep talent.