On March 5, 2020, the Reserve Bank of India (RBI) imposed a 30-day moratorium on YES Bank, superseding the private-sector lender’s board and appointing Prashant Kumar, then Chief Financial Officer and Deputy Managing Director at State Bank of India (SBI), as the administrator. During this period, deposit withdrawals were capped at ₹50,000 per person. The RBI proposed a reconstruction scheme under which SBI could take up to a 49% stake in the restructured bank. Although analysts believed that the new management led by Ravneet Gill, former head of Deutsche Bank India, could turn the bank around, Gill struggled to achieve this goal.

Brief History of YES Bank

YES Bank Ltd operates through three units: YES Asset Management Services, YES Capital, and YES Bank. Once the fifth-largest private lender in India by market capitalization, YES Bank was founded in 2004 by Rana Kapoor and Ashok Kapoor. The bank entered retail banking in 2005, launched debit cards in partnership with MasterCard International, and went public the same year. It earned several accolades, including being ranked as the number one bank in the Business Today-KPMG Best Banks Annual Survey 2008 and being the first globally to receive funding through IFC's Managed Co-Lending Portfolio Programme. The bank's branch and ATM network grew significantly, and it was listed in the 30-share S&P BSE Sensex by December 2017. However, its rapid expansion also led to significant challenges.

Factors Leading to the Crisis

1. Rising NPAs: The RBI's asset quality reviews in 2017 and 2018 revealed a sharp increase in YES Bank's impaired loans and significant governance lapses. The bank's gross NPAs doubled between April and September 2019 to ₹17,134 crore.
2. NBFC Crisis: The collapse of IL&FS and DHFL severely impacted YES Bank, which had substantial exposure to these entities. By September 2019, the bank had classified around ₹10,000 crore of its loans as potential non-performing assets.
3. Governance Issues: Governance problems included the resignation of independent director Uttam Prakash Agarwal in January 2020 due to deteriorating corporate governance standards. Additionally, Rana Kapoor, a key figure in the bank's establishment, was asked to step down as CEO in January 2019.
4. Excessive Withdrawals: Financial instability led to a steady withdrawal of deposits, further straining the bank's balance sheet. By September 2019, the deposit book stood at ₹2.09 trillion.

RBI’s Actions Against YES Bank

The RBI intervened by taking over the bank's management, imposing a moratorium, and proposing a draft reconstruction scheme that included SBI investing capital to acquire a 49% stake.

The Imposition of the Moratorium

The RBI cited YES Bank's declining financial position and inability to raise adequate capital to cover potential NPAs. Credit rating downgrades compounded the difficulty in raising capital, alongside severe lapses in corporate governance.

How the Moratorium Works

The moratorium, effective until April 3, 2020, limited deposit withdrawals to ₹50,000. In emergencies, depositors could withdraw up to ₹5 lakh for medical expenses, higher education, marriages, or other unavoidable situations.

Next Steps for YES Bank

The RBI’s draft reconstruction plan aimed to protect depositors' funds and maintain employees' service conditions for at least a year. SBI, receiving board approval to invest, was to acquire up to a 49% stake at a minimum price of ₹10 per share, maintaining at least a 26% stake for three years from the capital infusion date.

Case Against Rana Kapoor

Rana Kapoor, co-founder and former CEO of YES Bank, began his career at Bank of America and co-founded Rabo India Finance before establishing YES Bank. He was known for his networking skills in the corporate sector. In September 2018, he was asked to step down and was succeeded by Ravneet Gill.

Conclusion

The YES Bank crisis underscored significant vulnerabilities in the Indian banking sector, highlighting the need for robust risk management, sound corporate governance, and effective regulatory oversight to maintain financial stability and protect depositors' interests.