SVKM’S NMIMS SCHOOL OF LAW

NAVI MUMBAI

FINANCE RESEARCH PAPER

YES BANK: CASE OF GREED AND FRAUD

SUBMITTED TO:
Prof. RASHPAL KAUR

SUBMITTED BY:
NAME -- LAVANAYA ANEE
BATCH -- BBA-LLB
SEMESTER -- 2nd SEMESTER
SAP ID-- 81022019408
ROLL NO. -- A110

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 TABLE OF CONTENT

S.no. Content Page No.

1. Abstract 3
2. Introduction 4
3. Review of Literature 4-5
4. Structure of the Paper
- Statement of purpose 6
- Research Question 6
- Objective 6
- Research Methodology 6
5. History of the Bank 7
6. Reasons behind the Bank’s Downfall 7-9
7. Measure Taken by RBI 9
8. Conclusion 10
- Findings 10
- Suggestion 11
9. REFERENCE 12-13

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 YES BANK: A CASE OF GREED AND FRAUD
LAVANAYA ANEE
NMIMS, SCHOOL OF LAW, NAVI MUMBAI
Email id- [email protected]

ABSTRACT

Banks play a critical part in the development of the country's economic prosperity. Failure of any
private sector bank or public sector bank, regardless of who owns the bank, has the potential to
affect everyone. As a result, neither the Indian government nor the Reserve Bank of India (RBI)
will ever allow a bank that is experiencing financial difficulties to go bankrupt. Yes Bank Ltd,
one of India's largest private banks, has been dealing with the challenge of its financial condition
worsening at an alarming rate. As a result, the Reserve Bank of India (RBI) was forced to take
urgent action in order to preserve depositors' savings. This research paper examines a variety of
aspects of Yes Bank's historical development.

Keywords: Banks, Loans, Financial Position, Improper Governance, Bank merger

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 I. INTRODUCTION

A bank plays an important role in maintaining the economic condition of the country. The Yes
Bank crisis created panic among the people in March 2020 as it was the biggest private sector
bank. The failure of a bank, be it a public sector bank or a private sector bank, can affect
everyone. In March 2020, news came out that there is a high chance of a Yes bank collapse
which caused panic among the depositors. The Reserve Bank of India decided to solve this issue.
Reserve Bank of India superseded Yes Bank board of directors for a period of 30 days.
Yes Bank is the biggest bank in the private sector and even most UPI apps are dependent upon
Yes Bank. By June 2020, Yes Bank was back on track to its business and has been improving
over the past few months. The SBI, which has received board approval to invest in YES Bank,
will pick up to a 49% stake, according to the scheme. In this paper, there are reasons for bank
downfall and what did RBI did to safe the bank.

II. REVIEW OF LITERATURE

1. Reshu Sharma and Sweta Sharma (2018) The Indian banking industry plays an
important role in the economic development of the country and is the most
dominant segment of the financial sector. Banks help channel savings to
investments and encourage economic growth by allocating savings to investments
that have potential to yield higher returns
2. Singla H.K (2008), examined the role of financial management in the growth of
banking. The study analyzed the financial position of 16 banks using various
financial ratios.
3. D Musyoki, AS Kadubu (2012) The different criteria affecting credit risk
management in a bank and their influence on the bank's financial condition were
evaluated. The analysis discovered that, of all the criteria examined, default risk is
the most significant factor impacting the bank's financial situation.

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4. P. S. Pombarla (2020), This essay examines the Yes Bank Crisis via the lens of a
case study. Banks are critical to the country's economic prosperity. Failure of any
private sector or public sector bank, regardless of ownership, can have a ripple
effect on the whole financial system. As a result, neither the Government of India
nor the Reserve Bank of India (RBI) will ever allow a bank suffering financial
difficulties to fail. Yes, Bank Ltd, one of India's largest private banks, has been
experiencing a rapidly deteriorating financial condition. This demanded urgent
action by the Reserve Bank of India (RBI) to safeguard depositors' funds. This
research study delves into several facets of Yes bank's journey.
5. Harmeet Kumar & Atul Topuno (2017), The banking industry is regarded as the
country's backbone and lifeblood. By channeling the country's savings, the
banking industry contributes significantly to economic development. Yes Bank
has been one of the country's fastest growing private sector banks. It has won
several national and international accolades for its development and opportunity
generating strategy in areas like as corporate investment banking, treasury,
transaction banking, and responsible banking. The research makes an attempt to
investigate the different financial variables that contributed to the demise of one
of the fastest growing banks. The yearly stock performance of Yes bank was
analyzed over a seven-year period, and several basic parameters such as net profit,
cash flow from operations, revenue, and ratios such as ROE and EPS were
evaluated. Additionally, the Yes Bank's ownership structure was examined.

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STATEMENT OF PROBLEM
The purpose of this study will be to understand the Yes Bank Crisis for ICA at NMIMS, School
of Law, Navi Mumbai. At this stage in the research the reasons for the downfall will be
discussed.

RESEARCH QUESTION
What was the Yes Bank crisis?

OBJECTIVES
1. To understand the reasons for the Yes Bank crisis.
2. To Explore measure taken by RBI

RESEARCH METHODOLOGY
The research paper uses a secondary method for drawing analysis. The data are taken from
reliable sources and for reviews of literature and the research reports are taken from google
scholar, academia, ProQuest, ResearchGate etc. There were some other online resources that
were used such as Blogs, Newspaper articles and Books available online.

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 III. HISTORY OF YES BANK

Yes Bank is a financial institution that offers banking and financial services. There are around
1050 branches spread across India. Rana Kapoor and the late Ashok Kapoor founded Yes Bank
Ltd. on November 21, 2003. On January 21, 2004, the bank received its certificate of
incorporation. In 2005, they made their retail banking debut with the launch of the International
Gold and Silver debit cards in collaboration with MasterCard International. They issued a public
offering in June 2005, and their shares were listed on stock markets. The bank got the Financial
Express Awards for India's Best Banks in 2006. They formed a partnership with the Agriculture
Insurance Company of India in April 2007. (AIC). Yes Bank was voted first in the 2008
Business Today-KPMG Best Banks Annual Survey. Chairman and two independent directors
resigned from their positions in November 2018.

IV. REASONS THAT LEAD TO THE CRISIS

A. A LARGE AMOUNT OF LOAN

On March 31, 2014, Yes Bank's book of accounts showed a loan of 55,633 crores and a
deposit book of 74,192 crores. Since then, loan growth has been rapid, reaching 2.25
trillion as of September 30, 2019. The bank's asset quality has also deteriorated.
According to global financial firm UBS, Yes Bank is providing stressed loans to firms
who are unable to repay the loan on time. Yes Bank took a significant risk. Such debts
are referred to as bad loans.

B. LOANS THE FIRMS AND COMPANIES & NPA

Yes Bank made loans in excess of its net value to firms that are unlikely to repay the
debt. According to a UBS analysis, Yes Bank's bad loans are expected to be worth about
Rs.40000 crores (Gross NPA) by the end of December 2019.

C. A LARGE NUMBER OF WITHDRAWALS

A bank run occurs when a large number of depositors withdraw their funds at the same
time or within a particular time frame. A bank run is usually the consequence of panic

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 rather than genuine insolvency. The Yes Bank crisis has been dubbed "history's worst
bank run."
D. FINANCIAL POSITION OF YES BANK
Yes Bank's share price was Rs.400 in 2018, however it is currently just Rs.16.60 as of
March 6, 2020. The company's financial situation deteriorated as a result of its inability
to borrow money to cover possible loan losses.

E. HUGE LIABILITIES
Yes Bank has a total liabilities of 24 thousand crores of rupees. The bank's balance sheet
is around $40 billion (2.85 lakh crore rupees). To enhance the capital basis, it had to pay
$ 2 billion. (According to 2019 statistics) These are some of the causes behind the yes
bank's pitiful state.

F. IMPROPER GOVERNANCE
Yes Bank is a for-profit institution. It has encountered a number of governance
difficulties that contributed to this catastrophe. In January 2020, Uttam Prakash Agarwal
resigned as an independent director of Yes Bank, citing the bank's deteriorating
governance.

G. BANK MERGERS
Yes Bank will be acquired by the State Bank of India for a 49 percent share. Chairman
Rajnish Kumar stated categorically that no combination of the institutions is planned. The
State Bank's investment was the finest offer available to deal with the current
circumstances, he stated. Depositors at Yes bank lacked confidence in the bank's security.

H. Corporate Loans
Mr. Rana Kapoor, the founder of Yes Bank, was detained on suspicion of approving
corporate loans. Non-performing assets totaled 42000 crores. Yes Bank served a sizable
portion of the business sector. These businesses obtained loans from Yes Bank and
eventually became insolvent. It impacted the Bank, since businesses were unable to repay
loans on time.

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 I. Corporate debt and divergence in credit ratings

As a commercial bank, Yes Bank offered a comprehensive variety of goods, services, and
digital technology solutions. Additionally, it provided loans to businesses and enterprises.
Among them were DHFL, CCD, the Essel group, and the reliance group of enterprises.
Yes bank's credit trade was downgraded in March 2020 as a result of the crisis. The
primary reason for putting a moratorium on Yes Bank was the bank's inability to grow its
capital.

V. MEASURES TAKEN BY RESERVE BANK OF INDIA

The Reserve Bank of India assumed overall administration of the bank. Yes Bank had been
placed under a 30-day moratorium by the Reserve Bank of India. There was no reason to
increase capital investment to address the NPA's predicament. The bank's financial situation was
insufficient for capital raising. Additionally, the bank's corporate governance was lax. This
Moratorium was a temporary suspension of lenders' authority. As a result of the moratorium,
depositors were permitted to withdraw up to Rs.50,000 per individual and up to Rs.5 lakhs in
medical or emergency situations. In the event of an emergency, depositors receive a little benefit.
The Reserve Bank of India (RBI) published a draught 'Scheme of Reconstruction,' which calls
for the State Bank of India (SBI) to inject cash in order to acquire a 49 percent share in the
reconstructed private institution.

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 VI. CONCLUSION

Yes Bank is a for-profit institution. Yes Bank faced a catastrophic catastrophe in March 2020.
There were a high number of faulty loans made by banks, and depositors withdrew large sums
from the bank, all of which contributed to Yes Bank's current problem. There was no balance
between the loan and depositors' balance sheets. To rescue Yes Bank, the RBI imposed a 30-day
moratorium.

The yes bank crisis has a significant impact on the possibility of other financial institutions
collapsing. The Reserve Bank of India, on the other hand, took the initiative and saved Yes Bank
from a massive collapse.

FINDINGS

1. Amount deducted towards loan and premium payments will be impacted if it is higher
than Rs. 50,000.
2. It will have an impact on customers whose salary account is linked to Yes Bank
3. The possibility of renewing or granting loans and making investments by the bank will
reduce.
4. It went on a loaning spree with advances rising by 334% between Financial Year 2014
and 2019.
5. Many borrowers started defaultingThe bank’s gross non-performing asset percentage,
that is the percentage of loans overdue for more than 90 days, zoomed to 7.39% as of
September 2019, the highest among comparable banks.
6. While bad loans piled up, the bank did not make enough provisions in its profits. Its
provisions were the lowest among comparable banks
7. Customers withdraw large amounts, resulting in the credit-deposit ratio crossing 100% in
2018-19. That is, it lent more than it received.
8. Loan spree and high NPA meant poor profitability, gauged by Yes Bank’s sinking
Return on Assets. The bank's assets fell steadily.

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SUGGESTIONS

1. In order to prevent any crisis like yes Bank, There should be clear separation between
Ownership and control.
2. All the stakeholders, including bank boards, auditors and the regulator have to maintain
constant vigil, given the high stakes for safety and stability.
3. Investors should pay attention to lapses in corporate governance. Exit of upper
management, a dispute between promoters, under-reporting, poor results, any drastic fall
in share price should ring alarm bells.

REFERENCE

1. Singla, H. K. (2008). Financial performance of banks in India. The IUP Journal of Bank
Management, 7(1), 50-62.
2. Musyoki, D., & Kadubu, A. S. (2012). The impact of credit risk management on the
financial performance of banks. International Journal of Business and Public
Management, 2(2), 72-80.
3. Sharma, R., & Sharma, S. (2018). Banking Sector in India: An Overview. Global Journal
Of Commerce And Management, 3(3), 37,38. Retrieved 7 July 2021, from
https://www.longdom.org/articles/banking-sector-in-india-an-overview.pdf.
4. Pombrala, P. (2020). A study of Yes Bank. IOSR-Journal Of Business And Management,
22(7), 36-45. https://doi.org/ISSN: 2278-487X
5. Kumar, D., & Topno, A. THE STUDY OF THE FINANCIAL FACTORS
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6. Case Study: The Yes Bank Crisis | Www.casereads.com. CaseReads. (2020). Retrieved 7
July 2021, from https://casereads.com/case-study-the-yes-bank-crisis/.

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https://www.ibm.com/downloads/cas/P3GWJXM0.
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https://www.thehindu.com/business/yes-bank-crisis-explained/article31030273.ece.
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