As a shareholder, Rana Kapoor’s principal aim naturally was to add value to his holding. For this, he used to declare aloud and repeated several times that he wanted to build the world’s best bank in India. Finally, he landed in jail.
YES, would have been a sure fall
Yes Bank once lured cream customers from public sector banks for expansion of its base. It ended in the hands of a public sector bank for its survival.
Band successful PR attempt to creep into mainline media made the small Yes Bank a big Yes Bank by name under clever shrewd Rana Kapoor. The talks of knowledge banking, agricultural banking, priority sector banking so on, and so forth kept it moving on express tracks with no analysts ever delving deep into the soul. Rana Kapoor, the co-founder of the group, had the capability to electrify the listeners of his speech and in discussions. The bank ran on his honey tongues. That was his personal interest, being a stakeholder in the equity with a purpose. Now the bank is out of his claw.
If reports appeared in media at different times were true, Rana Kapoor was keen to project himself bigger than his co-promoter, Ashok Kapoor, who was killed in the Mumbai terror attacks in 2008. Both the Kapoors were serving in the erstwhile ANZ Grindlays Bank before Rana moved to Bank of America and Ashok to ABN Amro Bank.
Rana appeared shrewder, as he has always been. Nevertheless, his shrewdness met with an inevitable end. The first show of his shrewdness appeared in his action of giving prominence to himself in YES Bank’s annual report 2006, keeping the picture of himself in a bigger size, out- shadowing the bank Chairman Ashok Kapoor’s picture. He justified it by claiming that he worked harder and he deserved it.
For five years after the death of Ashok Kapoor, Rana Kapoor hadn’t visited the widow, Madhu Kapoor, and her children. Rana Kapoor didn’t give any consideration to the bereaved family and continued to neglect them, seemingly he was afraid of their entry any way on the board. He served the bank for 14 years as Managing Director and CEO and 10 years as Chairman along with the post of MD and CEO, after the death of Ashok Kapoor. He continued at the robbed position until the Reserve Bank disallowed his continuation. He could even manage to survive in the chosen position despite objections from the widow of Ashok Kapoor, though he had to sign a truce with her after judicial intervention. As a shareholder, Rana Kapoor’s principal aim naturally was to add value to his holding. For this, he used to declare aloud and repeated several times that he wanted to build the world’s best bank in India. Interestingly, of late, a money laundering suspicion has emerged to nab the man who talked about the world’s best bank. Rabo Bank’s opportunity along with Ashok Kapoor and Rabo Bank itself made him richer.
Rabo Bank has a Dutch origin and is one of the world’s most powerful financial institutions. Kapoor’s ` 9 crores in Rabo Bank returned him $ 30 million which he invested in his baby bank, along with Ashok Kapoor and Harkirat Singh, who made an early exit from the bank.
The investment in Yes Bank made Rana Kapoor richer several times – with a compounded annual return of 34 percent, thanks to the well decorated and larger than life image of the small bank. His handsome salary apart. A year before his complete exit from the bank, he said, each share of Yes Bank was a diamond and never to sell.
Two years after this talk, India’s largest banking conglomerate, State Bank of India (SBI) has offered `10 a share for 49 percent stake, the real value of the so-called diamond for its rehabilitation. Rather than anything else, an image created by beautifully structured words, for which Rana Kapoor has an extraordinary skill, could sell for a handsome premium. Rana Kapoor knew it and proved it.
A day after RBI curb on its transactions, Enforcement Directorate raided the Mumbai house of Rana Kapoor in connection with a suspicious money laundering in DHFL case to the extent of `5000 crore.
But the foreign institutional investors (FIIs), whom he allured seemingly fell in traps as the stock price tumbled and SBI made an offer of 10 each for the share of 2, that too for a controlling stake. The FIIs and Indian institutions may not see any prudent way to exit in the near future. With his exit, the fabricated image of the bank also evaporated. The first confirmed sign of imminent fall became visible after the bank reported a loss of over ` 600 crores in the first half of 2019-20, exactly a year after Rana Kapoor’s complete exit from his holding. Some could trade on the high fluctuation stock for a fortune for sometimes after its listing. It used to pay handsome dividends. The dividend, salary, and capital appreciation made Yes Bank a
goldmine for Rana, who worked hard to be a man to reckon with in seminar circuits, banking events, and panel talks- a bigger consideration, he got, more than a bank of Yes Bank size deserved.
A decade and half of its existence owe greatly to its success in alluring some cream customers of public sector banks, though ubiquitous public sector banks were large enough to feel little about the loyalty shift of some customers. There were customers who felt initially comfortable because of its liberal credit terms, though the cost was higher. The liberal credit for the rapid expansion of assets tore the quality.
The prospects of the bank’s asset quality improvement looked bleak. Bad loans rose to sky-high, which could be unimaginable for a new generation private bank that used to boast about being the world’s best bank. November last year, it failed to raise capital owing to its downgrading. Without fresh capital, further lending was impossible. Liabilities could only become bigger liabilities. But one thing was true, customer service was the best because it knew each of its customers had enough in their pockets to stay comfortable with it.
Lending terms were friendlier. It could acquire customers from other banks where they weren’t happy. Yes Bank found its opportunities there. Nevertheless, everyone cannot be fortunate every time.
Reserve Bank entered the crisis scenario at right time, perhaps after a thorough contemplation. It sent a top State Bank man as administrator after dissolving the board and regulated the transactions to prevent a banking disaster, thanks to the tight regulatory control. Initially, analysts thought it would go by the way of other troubled banks – forced merger with a large bank. But a day later, a new solution emerged. The acquirer became a deal maker. India’s largest lender, State Bank turned up to be a conditional investor in the small private bank and ruled out a merger for the time being.
But by the time the decision was announced, other banks began to chase cream customers of Yes Bank, which has more business customers than individuals. The exodus of customers might only increase in the days to come, because of the withdrawal control. Business accounts need an immediate solutions for their operation and survival. No business house could wait for 30 to see the storms getting settled for resuming their transactions. Private banks like ICICI Bank and Kotak Bank and public sector banks like Bank of India sent their managers to visit Yes Bank customers with new enticing offers like unsecured loans to meet their immediate requirements. They are offering lower rates and better terms. Now, these customers are back to the fold of public sector banks and other private banks, where they may feel safer.
All may not have been as lucky as Rana Kapoor and other early-stage private equity investors. Yes, a bank with a fascinating facade fell as nature made its call, because of the over-zealous banking on big talks that had no soul.
YES Bank’s imminent fall was averted by the regulator’s right time intervention. RBI sent the right person from India’s largest lender, State Bank of India to take care of it and rehabilitate it from a disaster. Quickly, SBI also footed a proposal, surprisingly for investing in it rather than merging it with itself.