4 ECONOMY & FINANCE MUMBAI | MONDAY, 9 MARCH 2020 1 >

N YES BANK CRISIS N The man who said ‘yes’ to a chosen few Weak compliance and poor governance led to rialised. Kapoor’s aggressive lending shares, comparing them to diamonds MONEY GONE BAD practices didn’t help in building con- he would pass on to future genera- failure as it lent to those who couldn’t repay Gross NPAs (in %) fidence in the bank. tions. Ultimately, he was out of the Advances had grown in double- bank as both the head and signifi- SACHIN P MAMPATTA bank stints, including one at ANZ digits for the longest time. It only cant shareholder. Mumbai, 8 March Grindlays’ Investment Bank, and his began to show signs of slowing down There were other issues, too, in US education had raised questions in 2019. The last quarter for which YES Bank’s journey. This included a hen Rana Kapoor, bespec- as to why he would let go of a com- the data is available shows that dispute with the late co-founder tacled and casually attired, fortable post at a foreign bank for advances shrunk 6.1 per cent year on Ashok Kapur’s wife Madhu Kapur Warrived for Enforcement something new. He answered in two year as the bank grew increasingly over board representation, which Directorate (ED) questioning at the words: “entrepreneurial joy”. tight-fisted. turned bitter. The Bombay High agency’s Ballard Estate office in This joy had him working at his Quarterly net profit had been Court had ultimately ruled in her Mumbai on Saturday, he seemed a office as torrential rain swept falling since a year before, with loss- favour. There were rumours of a far cry from the hard-driving execu- Mumbai in July 2005. He cleared his es in every quarter from September truce between the two promoter tive that made YES Bank one of desk of pending papers ahead of a 2018. The gross non-performing families but the stock price didn’t India’s largest banking players since board meeting. Ultimately, the board assets ratio, or bad loans as a per- show any traction. This was even as it began operations in 2003. meeting itself was postponed as two YES Bank co-founder Rana Kapoor after being arrested by the Enforcement centage of total loans given out, rose the RBI was also reportedly unhap- Kapoor had worked with Rabo key board members couldn’t join Directorate. Experts said Kapoor’s aggressive lending practices didn’t help from 1.6 per cent then to 7.4 per cent py with the way that divergences India Finance at the time, and was amid the chaos in the city, which hap- in building confidence in the bank PHOTO:KAMLESH PEDNEKAR Source: Capitaline, Business Standard in September 2019. were handled at the bank, and slated to only be a co-promoter direc- pened around the time the company Depositors, interestingly, may declined to let Rana Kapoor contin- tor; not head the bank. The bank had was listed. The lender had grown at break- meted to ~4,132 crore on the BSE n’t have enough capital to cover these have acted presciently — total ue as its head. appointed Korn Ferry, an executive The listing itself could scarcely neck speed in the intervening years, after news of the government’s deci- advances either. The ED arrested deposits of the bank shrank for the Early advertisements for the insti- search firm, to find its first chief. have gone better. The first trade for helped perhaps by Rana Kapoor’s sion to supersede the bank’s board Kapoor on Sunday morning, alleg- first time in September 2019. The tution showed a banker saying “yes” Discussions within the promoter the stock was for fifty shares at a price reputation as a banker, willing to and impose a moratorium. ing that the Kapoor family has taken bank has delayed announcing its to an entrepreneur looking for funds. group finally resulted in the decision of ~65. This was a 44 per cent gain aggressively write checks. He report- Depositors began lining up to with- kickbacks from companies that the December 2019 quarter numbers, Business Standard had also asked that Rana Kapoor should become over the issue price. Subsequent gains edly had successfully got his money draw cash. They had been told bank lent money to. which doesn’t portend well. Rana Kapoor before operations managing director and chief execu- saw it enter the National Stock back from some promoters even that they can’t take out more than The recent quarters had been a Kapoor’s shares were sold after began, why his venture was called tive officer. Ashok Kapur, the other Exchange’s Nifty 50 index, a bench- when other banks struggled, but it ~50,000 until the bank’s issues desperate attempt to get additional lender-invoked pledges got triggered. YES Bank. “It’s positive and has a reli- co-founder, was to be chairman. mark comprised some of India’ did not always work. Ultimately, it are resolved. funding by the new CEO, Ravneet He was reduced to holding only 900 able and trustworthy feel to it,” he Kapoor put in his papers at Rabo, largest and well-known companies, proved too much with the Reserve Analysts have pointed out that the Gill, who came from Deutsche Bank shares worth ~60,000, according to a had said. which began its own search for a new and then in the 30-stock BSE Sensex. Bank (RBI) reportedly growing bank had lent out too much money to after Kapoor was sacked by the RBI. November 2019 news report. He had, Investors and the depositors chief executive. His beginnings at The bank was worth over ~80,000 unhappy with the bank’s practices. industrialists who didn’t seem to be Names of multiple investors had in a September 2018 social media lining up outside outlets may now Bank of America and other foreign crore as recently as September 2017. Its market capitalisation plum- in a position to give it back. And it did- done the rounds, but nothing mate- post, said he would never sell his feel otherwise. YES Bank clients’ SBI Cards Retail investors bought shares applications hang in balance as institutions exited en masse DEV CHATTERJEE Regulators, bankers in a in the account till the time the allotment Mumbai, 8 March is finalised. huddle to resolve issue According to the people in the know, As YES Bank’s financial met- the second option is that allotment process rics started showing signs of SAMIE MODAK takes place normally but YES Bank clients, stress over the past year, large Mumbai, 8 March who get an allotment, are asked to pay institutional shareholders and through alternative banks. the promoter of the bank sold The fate of applications worth nearly Market players say it is unlikely that their shares. But it was the ~1,500 crore in the SBI Cards and Payment the RBI would approve of the first method retail shareholders who were Services’ initial public offering (IPO) hangs and the second method also could pace left holding the can with over in the balance as many corporate and indi- operational difficulties. 50 per cent stake in the bank, vidual investors have bid in the share sale “The second option looks more viable. statistics collated by Business WHO HOLDS WHAT through YES Bank, which is placed under However, bankers will have to ensure that Standard shows. moratorium by the Reserve Bank (RBI). the IPO process doesn’t get prolonged. While promoter Rana YES Bank 9.6 13.7 2.2 17.5 15.5 23.6 While investors have adequate funds in One tweak could be that the shares are Kapoor’s shares were sold share 3.3 2.5 34.2 holding (%) 25.2 4.1 their YES Bank accounts, the moratorium kept in a separate account till the time either by him or because 23.0 21.5 21.0 4.6 53.2 would mean their funds will not be able to these investors pay, so that the listing lenders exited plegded shares, Promoters 17.0 5.3 move from their account to that of the process doesn’t get delayed. However, here the other promoter family —  19.3 issuer company. The country’s second- the risk is if the shares list at a discount, the Gogias — remained Foreign AT STAKE  43.0 40.1 37.0 41.2 34.9 6.0 largest credit card company’s ~10,300- these investors may not pay,” said a person invested. In November, Institutions 14.2 crore IPO closed on Thursday, hours About ~1,500 crore of applications worth privy to the discussions. Kapoor sold his residual shares Non-promoter 28.1 before the RBI imposed the curbs. ~2 trillion are said to have come through The legal implications of these two worth ~142 crore and was hold- corporate holding 18.2 YES Bank 20.0 19.9 19.8 19.8 19.9 Sources say investment bankers han- options are being vetted, says an invest- ing only 900 shares. This was Public & others 13.1 8.4 dling the SBI Cards IPO have raised this ment banker. Shares of SBI Cards are like- within weeks of Kapoor tweet- No. of applications Bids amt (~ cr) Q2 ‘18 Q3 ‘18 Q4 ‘18 Q1 ‘19 Q2 ‘19 Q3 ‘19 Q4 ‘19 issue with the Securities and Exchange QIB 289 104,992 ly to list on March 16. The allotment could ing that the bank shares are Board of India (Sebi). be finalised on Wednesday and the pay- like diamonds and he will nev- Compiled by BS Research Bureau Source: Capitaline “In light of what has happened, we HNI 12,260 62,597 ment process is expected to complete by er sell his diamonds. His have asked the regulator whether appli- Retail 3,082,306 8,032 Thursday and a day later, shares would shares stake in the bank fell “There was a continuous ing firms downgrading the global bank JP Morgan cations backed by YES Bank accounts Employee 57,872 598 reflect in individual demat accounts. Sebi after institutions invoked the flow of wrong news from bank’s instruments. “Retail pegged YES Bank shares at ~1 should be considered for allotment,” said has brought down the time gap between pledge on his stake. unnamed sources that mar- investors should have been a share. “We believe forced an investment banker. Officials repre- Shareholder 582,328 24,976 closing of an IPO and listing of the secu- While the foreign institu- quee investors are lining up to more careful considering that bailout investors will likely senting SBI Cards, investment banks Total 3,735,055 201,195 rities to just six working days. tions reduced their stake from buy YES Bank shares. This the promoter himself was exit- want the bank to be acquired handling the IPO, Sebi, and RBI are like- QIB: Qualified institutional buyer, HNI: High-net-worth Sources say nearly ~1,500 crore worth 43 per cent in June 2018 to kept retail investors interested ing,” he said. at near zero value to account ly to meet on Monday to find a solution individual Source: Investment bankers of applications are impacted by the crisis 18.24 per cent, public share- in the stock,” said an analyst For the retail investors, the for risks associated with to the problem. at YES Bank. Also, 6,000 retail investors holding went up from 9.58 per with a foreign brokerage. news is not so good as State the stress book and likely loss Sources say two options are on the called ASBA process before the morato- have used PhonePe UPI for payments. cent to 53.24 per cent. The local Shriram Subramanian, Bank of India-led bailout is of deposits. We remain table. The first includes seeking RBI’s rium was announced. The digital payment application had suf- institutions also reduced stake founder and CEO of proxy aimed at the depositors and underweight and cut our tar- approval to allow usual fund transfer ASBA or Applications Supported by fered an outage as its banking partner is from 25 per cent in June 2018 to advisory firm Ingovern, said not towards the equity get price to ~1 as we believe as the application amount for the IPO Blocked Amount is the facility YES Bank. However, PhonePe is said to 14.21 per cent by December several red flags were ignored investors. Soon after the RBI net worth is largely impaired,” has already been set aside under the so- under which the money remains blocked have restored its services. quarter last year (see chart). by the retail investors with rat- announced the moratorium, it said.

Axis Trustee 1: STRUGGLING WITH BAD LOANS 2: LOAN GROWTH REMAINS TEPID seeks clarity STATSGURU Net NPAs Mar ‘15 Dec ‘19 (%) Rise in advances Dec ‘18 Dec ‘19 (%) 3.3 -5.3 on AT-1 Oriental Bank of Commerce 6.0 Oriental Bank of Commerce 11.2 6.2 1.5 bondholders Mapping United Bank of India 8.6 United Bank of India 6.8 4.1 0.2 SUBRATA PANDA Punjab National Bank 7.2 Punjab National Bank -1.0 Mumbai, 8 March 3.1 -8.7 mergers Corporation Bank Corporation Bank Axis Trustee Services, the 5.3 0.8 debenture trustees for YES 2.7 1.0 Bank’s additional tier-1 (AT-1) THE ANNOUNCEMENT of swap ratios Union Bank of India 7.0 Union Bank of India 5.8 bond, has written to the for the combination of 10 public 2.9 13.6 Reserve Bank (RBI) seeking sector banks (PSBs) into four has Andhra Bank Andhra Bank clarity on the fate of the AT-1 put the spotlight on such 6.4 4.2 bondholders. It also asked for unions, and how they have fared 2.7 11.8 appropriate treatment for before. Analysts would be keenly Canara Bank 5.1 Canara Bank 5.0 watching as to how the entities them in the larger interest of 1.9 -4.8 debt capital markets and deal with the integration in a challenging Syndicate Bank 5.9 Syndicate Bank 7.1 future bankfundraising. business environment. 4.0 -2.0 RBI’s draft reconstruction Each of the 10 banks participating in the process Allahabad Bank Allahabad Bank scheme for YES Bank sug- has more bad loans than it did five years ago (chart 1), 5.1 7.2 gested a permanent write- though much of it is to do with better disclosures. The 2.5 15.5 down of these bonds out- slowing economy has reduced credit offtake (chart 2). Indian Bank 3.5 Indian Bank 8.9 standing as of March 5. Bad loan ratios are expected to largely worsen for the Source: Capitaline, Business Standard Research Bureau ILLUSTRATION: BINAY SINHA Source: Capitaline, Business Standard Research Bureau According to the draft, the anchor banks, though net non-performing assets write-down is “in conformity show a decline for some (chart 3). This also holds true with the extant regulations for capital adequacy. The anchor banks will see their 3: ANCHOR BANKS FACE SOME WORRY 4: CAPITAL ADEQUACY REMAINS KEY 5: BAD LOANS RATIOS WORSENED 6: CAPITAL ADEQUACY issued by the RBI based on the capital cushion decline in at least two instances, Merged entity by name of anchor bank Capital to risk-weighted assets ratio IN PREVIOUS MERGERS TOO WAS ALSO AFFECTED Basel framework”. show analyst estimates (chart 4). Net NPA ratio Before merger After merger (%) Pre-merger Post-merger (in %) Net NPA ratio Capital to risk-weighted assets ratio “We submit that such However, this is not unique to the latest exercise. Before merger After merger (%) Pre-merger Post-merger (%) 14.7 15.0 write-down of the AT-1 bonds, Previous attempts of bringing together PSBs may 7.2 7.0 14.014.0 14.1 13.9 14.0 6.9 13.42 if given effect to, will be an have helped the weaker ones, but tended to weigh 6.5 5.19 13.11 arbitrary and discriminatory on the anchor banks. The State Bank of India saw its 12.2 12.85 decision. While the Basel-III net non-performing assets go up after its 2017 merger 5.1 5.3 framework does legally per- with its associate banks and the Bharatiya Mahila 3.71 3.65 11.77 3.33 mit write-off of the AT-1 bonds Bank. This was also true for Bank of Baroda’s 2019 3.9 or conversion of such instru- merger with Dena Bank and Vijaya Bank (chart 5). 3.5 ments into equity, such pow- The capital adequacy ratio also declined in both er ought not to be exercised instances (chart 6). in a manner in which prefer- The latest set of mergers is likely to take time to ence is given to the common iron out the kinks, suggest analysts. The Reserve equity holders at the cost of Bank of India in December 2019 noted that private retail as well as other investors sector banks accounted for 69 per cent of who have directly or through incremental loans in 2018-19. They also had a similar Punjab Union Canara Indian Punjab Union Canara Indian State Bank Bank of State Bank Bank of mutual fund schemes and share in deposits. It remains to be seen if bigger PSBs National Bank Bank Bank National Bank Bank Bank of India Baroda of India Baroda regulated financial institu- would be able to protect market share. Bank of India Bank of India Note: SBI numbers are as of March 31, 2017, and April 1, 2017. Bank of Baroda numbers are as of March 31, 2019, and April 1, 2019 Source: Company presentations tions subscribed to the SACHIN P MAMPATTA Note: As of December 2019 Source: Motilal Oswal Financial Services Note: As of December 2019 Source: Motilal Oswal Financial Services bonds,” Axis Trustee said. StatsGuru is a weekly feature. Every Monday, Business Standard guides you through the numbers you need to know to make sense of the headlines Compiled by BS Research Bureau