TSMEJM Vol. 10, No. 1 & 2 (Jan.-June and July-Dec.

2020); pp-16-26

FINANCIAL PERFORMANCE OF YES BANK- A

RELOOK AT THE DECADE BEFORE THE RBI'S
RESCUE PLAN

Dr. Amita*
Mr. Sumit Bodla**
Dr. B. S. Bodla***

ABSTRACT

YES BANK is a private sector bank which came in to existence in the year 2004. This bank became one of India’s fastest
growing banks within ten years of its establishment. From 2010-2015, YES BANK lived the ‘Version 2.0’ phase during which
the focus was on expanding the Retail Banking capabilities by drawing upon the Wholesale Banking franchise through a
B2B2C approach for client acquisition and business generation. The bank had a market share of close to 1% in the Indian
Banking industry in year 2015 when it planned, steady growth rate to garner a 2.5% market share in India over the next 5
years. However, it ran into trouble following the central bank's asset quality reviews in 2017 and 2018, which led to a sharp
increase in its impaired loans ratio and uncovered significant governance lapses that led to a complete change of
management. The bank subsequently struggled to address its capitalisation issues. The present paper is an attempt to
analyse its performance for a period of ten years from 2011 to 2020, that is before and around one year after the RBI
restructuring plan. The study applied ratio analysis method to comment on the performance. The results indicated the bank
was doing very well in so far various performance parameters are concerned except NPAs. The bank faced the crisis only
and only on account of loans to the firms with very poor credit standing.
Keywords: YES Bank, NPAs, RBI, Commercial Banks, Capital Adequacy

INTRODUCTION TO YES BANK

YES BANK Limited which is a private sector bank came was incepted in 2004. After the death of Mr. Ashok
Kapur, one of the founders of the YES BANK, Mr. Rana Kapoor became the Managing Director and Chief
Executive Officer of the bank. With the passage of time, this bank has grown into a ‘Full Service Commercial
Bank’ providing a complete range of products, services and technology driven digital offerings, catering to
corporate, MSME & retail customers.

* Assistant Professor, GMN College, Ambala Cantt.

** Senior Associate, Macquarie Global Services
*** Professor, University School of Management, K. U. Kurukshetra
Disclaimer: The views expressed in this paper are personal of the authors and the concerned organisations namely GMN
College, Ambala Cantt., Macquarie Global Services & KU, Kurukshetra, respectively have no role or concern to this paper
& its conclusions
The Bank is engaged in providing banking services, including corporate and institutional banking, financial
markets, investment banking, corporate finance, branch banking, business and transaction banking, and wealth
management. YES BANK received the Financial Insights Innovation Award 2012 for Innovation in payments.
The 1st phase of YES BANK’s lifecycle from 2004-2010 was characterized by ‘entrepreneurship’ and
involved building strong capabilities in the wholesale banking segment with a comprehensive product suite,
which leveraged the ‘Knowledge Banking’ approach while building a strong human capital team on the
‘Owner-Manager-Partner’ philosophy. By 2010, YES BANK was recognized as one of India’s fastest growing
banks in the previous 5 years and emerged as the Largest ‘Small’ Bank in our country, India. From 2010-2015,
YES BANK lived the ‘Version 2.0’ phase during which the focus was on expanding the Retail Banking
capabilities by drawing upon the Wholesale Banking franchise through a B2B2C approach for client
acquisition and business generation. YES BANK had a Market Share of close to 1% in the Indian Banking
industry in year 2015 and it had planned, steady growth rate to garner a 2.5% Market Share in India over the
next 5 years.

YES BANK ran into trouble following the central bank's asset quality reviews in 2017 and 2018, which led to
a sharp increase in its impaired loans ratio and uncovered significant governance lapses that led to a complete
change of management. The bank subsequently struggled to address its capitalisation issues. After the collapse
of IL&FS in 2018, the YES BANK practically had no means to recover. How did the bank grow its loan book
by 80% between March 31, 2017, and March 31, 2019, when the economy was down, credit demand unusually
low with no signs of a pick-up in private investment? This is a big question says M. K. Venu (7 March, 2020)
regarding the collapse of YES BANK.

LITERATURE REVIEW ABOUT YES BANK CRISIS

YES BANK had serious governance issues after Mr. Rana Kapoor took over as the chief of the bank. A
Business Today report says that The YES BANK gave loans to companies which were struggling in their
businesses. These companies included the Dewan Housing Finance Corporation Ltd (DHFL), Infrastructure
Leasing and Financial Services (IL&FS), the Anil Ambani Group of Companies, the Essel Group, and of these
DHFL and IL&FS have collapsed. Most of the stressed loans were given in post-2008 period. Global major
financial services firm, The UBS, a global financial services firm, reported on 7 July 2015 that the YES BANK
had the strongest growth in loans to potentially stressed companies. “Our analysis indicates that banks
continued to lend to potentially stressed companies in FY12-15, despite deteriorating cash flow and increasing
leverage at the group levels. 15-20% of companies we analysed are already categorized as non-performing
loans (NPLs) or have been restructured and, therefore, are already part of the banks’ impaired assets," UBS
analysts Vishal Goyal, Ishank Kumar and Stephen Andrews wrote in a report dated 7 July, 2015. “Estimated
loans approved to our sample set of companies as a percentage of FY15 loans was the highest for Yes Bank
Ltd at 19%, followed by ICICI (14%) and PNB (10%)," said UBS
(https://www.livemint.com/Industry/Rljmz6xB5vXMMZ7mX8IbAI/UBS-says-loan approvals- to-potentially-
stressed-firms-jump-8.html).

In August 2018, Rana Kapoor, then chief executive, was asked by the RBI to quit the bank by January 31,
2019. The RBI appointed Ravneet Gill as the chief executive of the YES BANK, who later disclosed that there
had been large under-reported stressed assets in the YES BANK. Ultimately, the YES BANK reported its
maiden loss in March 2019 quarter. The YES BANK has been trying to raise capital to infuse fresh lease of
life in the bank. It initially planned to attract $2 billion (approximately Rs 15,000 crore) in the current fiscal.
But later its board rejected a $1.2 billion (approximately Rs 9,000 crore) investment in the bank by Canadian
investor SPGP Group/ Erwin Singh Braich. In 2018-19, the bank under-reported NPAs to the tune of Rs 3,277
crore, prompting RBI to dispatch R Gandhi, one of its former deputy governors, to the board of the bank.

On March 5, 2020, the Reserve Bank of India (RBI) imposed a 30-day moratorium on YES BANK,
superseded the private-sector lender’s board, and appointed Prashant Kumar, who was serving as chief
financial officer and deputy managing director at State Bank of India (SBI), as an administrator. Under the
terms of the moratorium, deposit withdrawals were capped at Rs 50,000 per person. The central bank proposed
a reconstruction scheme under which SBI might take a maximum of 49% stake in the restructured capital of
the bank. Analysts believed

the new management of YES BANK, headed by former Deutsche Bank India head Ravneet Gill, who joined
the bank in early 2019, could turn around the ship. Gill, however, has struggled to do so. Finally, the
government rescued YES BANK, the country’s biggest-ever banking failure, by asking state-run State Bank of
India to infuse Rs 7,250 crore and take 45% stake in the bank. Reserve Bank of India had unveiled a draft
reconstruction scheme on March 6, 2020. The government had even put a sudden moratorium on cash
withdrawals. While the country’s largest lender may have rescued YES BANK, the crisis clearly indicates the
level of financial stress in the banking and financial sector. The Central Government has notified the “YES
BANK Limited Reconstructed Scheme, 2020” (Reconstruction Scheme) on 13th March 2020.

OBJECTIVE AND RESEARCH METHODOLOGY

Effective and sound banking system is very much essential for every economy as it plays a significant role in
development. The present paper is aimed to analyse the financial performance of YES BANK. This bank has
been chosen deliberately so as to bring in to light the real historical situation before the stakeholders and
researchers. Also, the study period of last ten years from 2011 to 2020 is covered under analysis as it is a
decade exactly before the restructuring plan of RBI was put in place, in March 2020, to rescue the ailing bank.

Tools and software used: For achieving the above mentioned objective a descriptive research design was
adopted wherein use of secondary sources of data was made. Data regarding all the important variables like
deposits, credit, NPAs, capital adequacy and earnings was collected from secondary sources like annual
reports of YES BANK, RBI's reports, and experts' blogs or short articles available on various internet sites.
The tools of data analysis applied include ratio analysis, percentage, and Compound Annual Growth
Rate(CAGR). The results are presented through statistical tables, graphs and charts. The graphs and charts are
drawn using Excel and Power Business Intelligence (Power BI) computing and visualization tools.

Parameters of Performance Evaluation: For making financial analysis 'Ratio Analysis Method' has been
used. The indicators used for examining the performance of Yes Bank are as under: •

 ROCE (%)
 Net Profit Margin (%)
 Return on Assets (%)
 Net Interest Margin (X)
 Operating Profit/Total Assets (%)
 CASA ratio
 Credit to Total Assets Ratio
 Capital adequacy ratio
 Net NPAs to Net Advances
 Gross NPA to Gross Advances

Brief description of variables: The most important ratio when it comes to banks and financial companies is
the 'Net Interest Margin'. It is the difference between the interest income generated and the amount of interest
paid out to their lenders (deposits), divided by total assets.
Return on assets indicates what percentage of every dollar invested in the business was returned as profit. It
simply shows how effective the company is at using those assets to generate profit. Investors should avoid
investing in a financial company whose ROA is below 1%.
Return on equity measures the percentage of profit we make for every dollar of equity invested in the
company. ROE is derived by dividing the difference between net income and preference dividend by
shareholder's equity. Ideally a financial company should have an ROE above 10%.
Loan to Deposit ratio (LTD) is commonly used to assess the bank's liquidity. It is calculated by dividing the
bank's total loans(advances) by its total deposits. If the ratio is too high, it means the bank might not have
enough liquidity to cover any unforeseen fund requirements. LTD above 100% is not healthy. If customers
begin to pull deposits, the bank might be suddenly strapped for cash. Financial leverage ratio also known as
financial leverage or leverage is a measure of how much assets a company holds relative to its equity. A bank
that borrows too much money might face bankruptcy during a business downturn, while a less-levered bank
might survive. A financial leverage ratio above 10 is aggressive. The leverage ratio of Lehman Brothers in
2007 was 30, no wonder it declared bankruptcy during the downturn.

Gross NPA and Net NPA ratios are used to measure the asset quality of the bank's loan books. NPA are those
assets for which interest is overdue for more than 3 months. Net NPA ratio above 1% is not healthy and if the
NPA ratio for the last 10 years stays below 1% then that is a sign of good management.

RESULTS AND DISCUSSION

Profitability Performance and Operating Performance Ratios

Table 1 presents the profitability and operating ratios of YES BANK during 2011 and 2020. It reveals an
upward trend about ROCE during the FY 2011 (2.1%) to 2017 (2.86%). However, ROCE of this bank came
down to 2.24 percent in FY 2019, but again rose to 4.95% in FY 2020. Net profit margin of this bank
increased to 20.84% (all time high) during FY 2018 from 15.48% in FY 2012. Unfortunately, the Net profit
margin came down to 5.8% in FY 2019 and turned negative (i.e. -62.98), first time, in FY 2020. The position
of Yes Bank remained unsatisfactory during the last ten years in so far as the Operating Profit Margin in
concerned as this margin remained in minus between last seven years from FY 2014 to FY 2020. The 'return
on assets' of Yes Bank has increased consistently from FY 2011 to FY 2017 and remained very impressive
e.g. between 1.23% and 1.54% during this period. However, the return on assets went down to -6.36% in FY
2020. The 'return on equity' which is one of the important indicators of profitability performance of any
company indicates double digit return, hovering between 15% and 22% approximately, during FY 2011 and
FY 2018. Return on equity, however, remained only 6.39% in FY 2019 and turned negative (-75.56%) in FY
2020.

It is also evident from table 1 that Yes Bank has always performed better in terms of 'net interest margin'
because this margin has remained above 2% in each and every year during study period. Similarly, the interest
income to total assets ratio has been ranging between 7 to 8 per cent during majority of the years under
reference. Non-interest income to total assets ratio is another financial parameter where the bank can claim
appreciable performance as this ratio has risen from 1.05% in FY 2011 to 1.93% in FY 2017 and moreover,
this ratio remained above 1.5% in the majority of years. The 'interest expenses to total assets ratio' has been
above 4 percent in 8 years out of 10 years. CASA (Current account to saving account ratio) has increased
from 10 percent in FY 2011 to 36 per cent approximately in FY 2018 and this ratio has shown upward trend
till 2018, but came down substantially in recent two years. A clearly upward trend is visible in so far as 'cost
to income' ratio is concerned and this ratio reached from 20.87% in FY 2012 to 37.05% in FY 2019 and
92.5% in FY 2020

Table 1: Profitability and Operational Performance Ratios of Yes Bank during 2011-2020
Ratios Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar-
 20 19 18 17 16 15 14 13 12 11
ROCE (%) 4.95 2.24 2.57 2.86 2.73 2.51 2.61 2.28 2.26 2.1
Net Profit Margin (%) -62.98 5.8 20.84 20.27 18.76 17.32 16.2 15.68 15.48 17.99
Op. Profit Margin (%) -108.47 -9.68 -4.93 -5.03 -1.27 -0.35 -1.03 0.52 1.9 2.56
Return on Assets (%) -6.36 0.45 1.35 1.54 1.53 1.47 1.48 1.31 1.32 1.23
ROE / Net worth (%) -75.56 6.39 16.4 15.09 18.41 17.16 22.71 22.39 20.89 19.16
Net-Int. Margin (%) 2.63 2.57 2.47 2.69 2.76 2.56 2.49 2.23 2.19 2.11
Cost to Income (%) 92.5 37.05 34.27 32.18 29.17 25.91 24.09 22.77 20.87 24.5
Interest Income/Total
10.11 7.77 6.48 7.63 8.18 8.49 9.15 8.36 8.56 6.84
Assets (%)
Non-Interest
Income/Total Assets 4.59 1.2 1.67 1.93 1.64 1.5 1.57 1.26 1.16 1.05
(%)
Operating Profit/Total
-10.96 -0.75 -0.31 -0.38 -0.1 -0.03 -0.09 0.04 0.16 0.17
Assets (%)
Operating
Expenses/Total Assets 2.6 1.64 1.66 1.91 1.8 1.67 1.6 1.34 1.26 1.15
(%)
Interest Expenses/Total
7.47 5.2 4.01 4.94 5.42 5.93 6.66 6.13 6.37 4.73
Assets (%)
CASA (%) 26.63 33.06 36.45 36.3 28.05 23.11 22.03 18.94 15.03 10.34

EPS-DPS: The position of EPS, DPS and Net profit per share is depicted by the data shown in table 2. The
EPS has been rising steadily between 2011 and 2016 when it increased from Rs 21.12 to Rs 60.62. But EPS
declined sharply in 2017 to Rs 15.78, Rs 7.45 in 2019 and it was negative Rs 56 in 2020. Similarly, dividend
per share has registered an upward trend for long up to year 2016 but declining thereafter. The trend regarding
net profit per share coincide to that of EPS and DPS in case of Yes Bank Limited.

Table 2: EPS, Dividend per share, and Net Profit (in Rs)
Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar-
Ratios
20 19 18 17 16 15 14 13 12 11
Basic EPS (Rs.) -56.07 7.45 18.43 15.78 60.62 49.34 44.92 36.53 27.87 21.12
Dividend/Share 0 2 2.7 12 10 9 8 6 4 2.5
Net Profit/Share -13.08 7.43 18.34 72.95 60.39 48.01 44.86 36.27 27.68 20.95

Similarly, the trend about % Gross NPA and Net NPA is steep upward, more particularly during recent three
years. More precisely, the %age of Gross NPA and Net NPA has moved upward to 16.8 and 5.03 in FY 2020
respectively from 0.23 and 0.03 per cent in FY 2011. The above analysis shows the assets quality has
worsened alarmingly over the las ten years in case of Yes Bank.

Asset Quality: In order to examine the assets quality of Yes Bank, the data related to two parameters namely
Gross NPA and Net NPA has been analysed. Table 3 indicates that the amount of gross NPA has increased
from Rs 80.52 crore in FY 2011 to Rs 32877.6 crore in FY 2020, thus registering a growth of 40,731.59 per
cent during last ten years. The amount of Net NPA has increased from Rs 9.15 crore to Rs 8623.78 crore
(94148.96%) in the corresponding period.

Table 3: Asset Quality of Yes Bank (Amt. in Rs. Cr.)

Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar-
Ratios Mar-20
19 18 17 16 15 14 13 12 11
Gross NPA 32877.6 7882.6 2626.8 2018.6 748.98 313.4 174.93 94.32 83.86 80.52
 Net NPA 8623.78 4484.8 1312.7 1072.3 284.47 87.72 26.07 6.99 17.46 9.15

% of Gross NPA 16.8 3.22 1.28 1.52 0.76 0.41 0.31 0.2 0.22 0.23

% of Net NPA 5.03 1.86 0.64 0.81 0.29 0.12 0.05 0.01 0.05 0.03

Graphic Visualisation of Key Performance Indicators

The key performance parameters of the Yes Bank are also shown by way of various graphs, and charts from
figure 1 to figure 16. The pattern of these charts is not elaborated as these are self-explanatory.

Figure 1: YES Bank's Advances (in Cr.)

Advances (in Rs. Cr.)

Mar/2011 34363.64
Mar/2012 37988.64
Mar/2013 46999.57
Mar/2014 55632.96
Mar/2015 75549.82
Mar/2016 98209.93
Mar/2017 132262.68
Mar/2018 203533.86
Mar/2019 241499.6
Mar/2020 171443.29

0 50000 100000 150000 200000 250000 300000

Figure 2: YES Bank's Deposits (in Cr.)

Deposits (in Rs Cr.)

Mar/2011 45938.93
Mar/2012 49151.71
Mar/2013 66955.59
Mar/2014 74192.02
Mar/2015 91175.85
Mar/2016 111719.53
Mar/2017 142873.86
Mar/2018 200738.15
Mar/2019 227610.18
Mar/2020 105363.94
0 50000 100000 150000 200000 250000

Figure 3: YES Bank's CASA Ratio

 CASA (%)
40 36.45 36.3
35 33.06
30 26.63 28.05
25 23.11 22.03
20 18.94
15.03
15
10.34
10
5
0
Mar-20 Mar-19 Mar-18 Mar-17 Mar-16 Mar-15 Mar-14 Mar-13 Mar-12 Mar-11

Figure 4: YES Bank's Capital Adequacy ratio by Year

Capital Adequacy Ratios (%)

20
18 18 18
18 17 17 17 17
16
16
14
14
12
10 9
8
6
4
2
0
2020 2019 2018 2017 2016 2015 2014 2013 2012 2011

Figure 5: YES Bank's Net Profit (in CR.) by Year

NET PROFIT / LOSS FOR THE YEAR (in Cr.)

10,000

5,000 4,225
3,330 2,539
1,720 2,005 1,618 1,301 977 727
0
2020 2019 2018 2017 2016 2015 2014 2013 2012 2011
-5,000

-10,000

-15,000 -16,418

-20,000
Figure 6: YES Bank's Net Interest Margin
 NET Interest Margin (in %)
3 2.76
2.63 2.69
2.57 2.47 2.56 2.49
2.5 2.23 2.19 2.11
2

1.5

0.5

0
2020 2019 2018 2017 2016 2015 2014 2013 2012 2011

Figure 7:YES Bank's Return on Capital Employed

Return on Capital Employed (in %)

6
4.95
5

4
2.86 2.73
3 2.57 2.51 2.61
2.24 2.28 2.26 2.1
2

0
2020 2019 2018 2017 2016 2015 2014 2013 2012 2011

Figure 8: YES Bank's return on Assets (in%) by Year

Return on Assets (in %)

2 1.35 1.54 1.53 1.47 1.48 1.31 1.32 1.23
1 0.45
0
-1 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011

-2
-3
-4
-5
-6 -6.36
-7

Figure 9: YES Bank's Return on Equity (in %)

 Return on Equity (in %)
40
18.41 22.71 22.39 20.89 19.16
16.4 15.09 17.16
20
6.39
0
2020 2019 2018 2017 2016 2015 2014 2013 2012 2011
-20

-40

-60
-75.56
-80

-100

Figure 10: YES Bank's Net Profit Margin and Operating Profit Margin

Figure 11: YES Bank' Gross NPA and Net NPA (in Rs Cr.) by Year

Figure 12: YES Bank's % of Gross NPA and % of Net NPA by Year
 Figure 13: Loan to deposit ratio Liquidity Ratio

Figure 14: Financial Leverage Ratio

CONCLUSION

The foregoing analysis has indicated clearly an appreciable performance of the bank, till the FY 2018, in terms
of all the performance indicators except one, i.e. NPA. The analysis made in this paper might be sufficient to
describe the story of the way Yes Bank collapsed. The analysis has indicated that Yes Bank’s loan book grew
unusually during the study period, more particularly during FY 2017 and FY 2019. The loans grew from Rs
1,32,000 crore in FY 2017 to Rs 2,41,000 crore in FY 2019. That is an increase of 80% in just two years, when
 most banks were finding it difficult to lend. In just two years, Yes Bank nearly doubled the loan book it had
built over the previous 17 years of its existence. According to authors understanding based on available reports
of the experts, Yes Bank’s unusually large loan disbursals were made to already stressed corporate groups.
These companies had already gamed the many public sector banking institutions and run up a massive debt
which they were struggling to repay. These firms had enough clout to further game the system by using new
bank loans to prevent old loans from being declared NPAs. Also, there is a need to explain how the overall
loan growth of the bank during 2014-2019 was nearly 400% approximately – from Rs 55,000 crore in FY 2014
to Rs 2,41,000 crore in FY 2019. In nutshell, loans given to undeserving firms with poor credit standing has
remained the real cause of crisis faced by YES BANK. For this both the management of bank and supervisory
body (i.e. RBI) are culprits as they have powers to decide and regulate the operations of the bank.

REFERENCES

 Sudandira devi, M. (2015). A Performance Analysis of Yes Bank in India with Special Reference to
Tamilnadu. Global Research Review in Business and Economics; Vol. 1, No. 3, pp 1-15, retrieved from
http://www.grrbe.in/pdf/may2015/12-15.pdf
 https://economictimes.indiatimes.com/industry/banking/finance/banking/union-cabinet-approves-yes-bank-
reconstruction-plan/articleshow/74611656.cms?
utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
 https://www.livemint.com/Industry/Rljmz6xB5vXMMZ7mX8IbAI/UBS-says-loan-approvals-to-
potentially-stressed-firms-jump-8.html
 WHAT IS YES BANK CRISIS? https://www.business-standard.com/about/what-is-yes-bank-crisis
 M. K. Venu (7 March, 2020). The Wire. https://thewire.in/banking/yes-bank-crisis-indiscriminate-lending-
probe