IIUM Journal of Case Studies in Management: Vol.13, No.

1: 1-4, 2022 e-ISSN 2710-7175

Received: 09 July, 2021; Revised: 14 Aug, 2021; Accepted: 19 Aug, 2021

Reconstruction Scheme: YES Bank Crisis Case

Rashika Malik
Jagan Institute of Management Studies
3, Institutional Area, Sector-5, Rohini
Delhi-110085, India
Email: [email protected]

Abstract: It was 5th March 2020; Reserve Bank of India (RBI) superseded Yes Bank’s
Board of Directors and placed it under a 30-day moratorium as the financial position of
the bank had seriously deteriorated. The withdrawal of cash by people having accounts
in Yes bank was restricted at ₹50000 By RBI under the terms of moratorium which
created a panic among the customers of Yes Bank as well as the public as this was
leading to lack of their confidence in Indian banking system. But the involvement of RBI
into the case was somewhere able to store their confidence back. To administer the
case, Prashant Kumar who was deputy managing director and chief financial officer of
State Bank of India (SBI) was appointed as an administrator at that time. The present
case study intends to investigate what factors led to the collapse of Yes bank in 2020;
what was the revival plan of Yes Bank; and how RBI helped Yes Bank to resume its
operations via Reconstruction Scheme.

Keywords: Yes Bank; RBI; India,

ABOUT YES BANK

Yes Bank, headquartered in Mumbai, was incorporated by Rana Kapoor and Ashok
Kapur in 2004 as a high quality, customer centric and service driven bank. Sadly, Ashok
Kapur died in terrorist attack in Mumbai in 2008. Since its inception, Yes bank deals in
merchant banking, investment banking and brokerage business and mutual fund
business with two of its wholly owned subsidiaries namely Yes Securities and Yes
Asset Management (India) Limited and provide a complete range of products and
services, technology driven digital offerings, caters to corporate, MSME and retail
customers and grew into a ‘Full Service Commercial Bank’. Yes bank has Pan-India
presence. It was recognized among the top and fastest growing banks and was ranked
4rth amongst the top 10 private sector banks in India in 2019. Yes Bank also received
several nation and international honors for businesses including Transaction banking,
corporate investment banking and sustainable banking. Yes Bank was the first and only
Indian Bank which was included in the Dow Jones Sustainability Index in 2015.
Yes Bank follows the 5C’s engagement model (Culture, Career,
Communication, Care and Connect). Its core values are to create an intentional Culture,
support Career development, encourage honest and open Communication, show Care
as an organization and strengthen Connect with employees and community.

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Rashika Malik

Bank’s mission is to establish a high quality service-driven customer-centric private

Indian bank to cater to the ‘future businesses of India’. Bank’s vision is to build the
finest quality large bank of the world in India.

WHAT WENT WRONG?

It feels like nothing can go wrong when everything is going good, but that’s not the
case. And the same happened with the Yes bank. As soon as Yes Bank attained success
at its peak and overwhelming response and confidence from its customers, investors,
companies and credit rating agencies and government, something unexpected happened.
In 2015, UBS, a global financial service company reported that Yes bank has provided
loans to various companies including Dewan Housing Finance Corporation (DHFL), the
Zee group, Reliance group, Infrastructure Leasing & Financial Services (IL&FS) more
than its net worth that were unlikely to be recovered as the sectors or corporates to
which it was lending went in the state of crisis and has also raised the first red flag about
Yes bank’s asset quality, however, it still continued to provide loans to several big
corporates. Yes bank’s total exposure to shadow lenders (IL&FS and DHFL) was
around 11.5% as of September 2019. A series of defaults at IL&FS created a domino
effect.
The Non-performing assets (NPA) of the bank started rising. As a result, gross
NPA of Yes bank suffered a drastic doubling to ₹17134 crores over the period of April-
September 2019 due to which the bank was unable to raise capital as the recovery was
very difficult. The bank did not make enough provisions in its profits even though it
was facing bad loans. As compared to other banks, Yes bank’s provisions were the
lowest. Thus, the profitability of the bank suffered and return on assets reduced thereby
leading to the fall in the share price of the bank. In 2018-2019, the credit-deposit ratio of
the bank crossed 100% which means that the bank was lending more than what it
received.
Due to its inability to raise capital, Yes bank suffered a steady decline in the financial
position. Because of the decline in financial position of the bank, customers and
investors started redeeming their bonds and withdrawing deposits further leading to
liquidity issues for the bank. Moreover, Yes bank breached the RBI’s minimum
requirement of statutory liquidity ratio (SLR).
Additionally, Reserve Bank of India (RBI) noticed that Yes bank was facing
serious corporate governance issues and deteriorated management practices and weak
regulatory compliance in the recent years apart from incorrect asset clarification and
risky credit decision. Past actions of Yes bank’s management reflected their
incompetent and insensitive nature. On 10th January 2020, independent director and
chairman of the audit committee Uttam Prakash Agarwal resigned from the office
stating that corporate governance standards and management practices of the Yes bank
have deteriorated. Yes bank was struggling to fill its top management positions.

ROLE OF RBI: THE RECONSTRUCTION SCHEME

This necessitated RBI to take immediate action to take over Yes bank management in
the interest of public, particularly the depositors of bank and thus placed Yes bank
under a 30-day moratorium pegged at ₹50000 on 5 March 2020 and in the meantime as

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 Reconstruction Scheme: YES Bank Crisis Case

per the section 45 of the Banking Regulation Act, 1949, RBI drafted a scheme of
reconstruction or amalgamation of the Yes Bank. RBI used moral suasion as the
instrument of qualitative control on SBI to acquire the Yes bank. State Bank of India
expressed its willingness to invest in Yes Bank Ltd. and to be a part of reconstruction
scheme.
It was on 5th March 2020 that Yes bank was placed under the moratorium and
then the RBI superseded the Board and appointed an administrator. Post that on 6 th
March 2020, RBI placed the draft scheme for the reconstruction of the Yes bank in the
public domain and invited objections and suggestions from the stakeholders. On 13
March 2020, Union cabinet approved the Yes Bank Limited Reconstruction Scheme,
2020 proposed by RBI that will be led by SBI. The main aim of the scheme was to
safeguard the interest of the depositors, provide stability to Yes bank and ensure the
stable financial environment banking system.
The investors investing into YES Bank Limited included State Bank of India
(SBI), ICICI bank limited, Axis bank limited, Housing Development Finance
Corporation Limited (HDFC), Kotak Mahindra bank limited, The Federal bank limited,
IDFC First bank limited and Bandhan bank limited, RK Damani, Rakesh Jhunjhunwala
and the Azim Premji Trust. Stake of SBI in Yes Bank was 49%, ICICI and HDFC about
6% each, Axis bank nearly 3-6%, Kotak Mahindra, RK Damani, Jhunjhunwala and the
Premji trust about 3% each. SBI invested up to 49% of the equity with a lock-in period
of 3 years for up to only 26% of the 49% SBI invested. For other investors, there was a
lock-in period of 3 years for 75% of their investment and the remaining 25% was not
subject to any lock-in.
The authorised share capital of the reconstructed Yes bank has been increased from
₹1100 crore to ₹6200 crore and the number of equity shares has been altered from 450
crore equity share of ₹2 each to 3000 crore equity shares of ₹2 each.
The term and remuneration of the employees was kept same but the board could
discontinue the services of the managerial personnel at their discretion. There was no
change in the office and branch network of the restructured bank but the bank itself
could close down any of the existing branches or open up new offices or branches. All
the contracts, bonds, deeds and agreements remained effective in the same manner. The
rights and liabilities of the stakeholders of the reconstructed bank remained the same.
Prashant Kumar was appointed as the new MD and CEO of the company.
After the notification of the reconstruction scheme, moratorium was lifted
within 3 days and a new board was constituted within 7 days wherein at least two
directors from SBI became the part of the new board. The administrator so appointed
vacated the office within the 7 days of notification. The reconstructed bank was further
required to furnish the information regarding implementation of the Reconstruction
scheme from time to time to RBI.

KEY DILEMMA IN THE CASE

Key dilemmas faced: What should be the revival plan for the Yes Bank? What should
be done in the general interest of the public specially the stakeholders of the Yes bank?
What should be the stake of each investor in the reconstructed bank? What amount of
money should the customers of Yes bank be allowed to withdraw under moratorium?

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Rashika Malik

DISCUSSION QUESTIONS
Q1. What led to the Yes Bank crisis?
Q2. Briefly discuss the reconstruction scheme of Yes Bank announced by
RBI?
Q3. What according to you is the reason for government to intervene in the
Yes Bank crisis case?
Q4. What could be the aftermaths of Yes bank crisis?

REFERENCES
RBI. (2020, March 5). Draft ‘Yes Bank Ltd. Reconstruction Scheme, 2020’. Retrieved
from https://www.rbi.org.in/:
https://rbidocs.rbi.org.in/rdocs/content/pdfs/DraftSoR232020UK.pdf
Goenka, S. (2020, March 6). Yes Bank crisis explained: Here’s all you need to know.
Retrieved from zeenews.india.com: https://zeenews.india.com/companies/yes-
bank-crisis-explained-here-s-all-you-need-to-know-2268174.html
Hindustan Times. (2020, March 6). The reason behind Yes Bank crisis and what RBI is
doing. Retrieved from www.hindustantimes.com:
https://www.hindustantimes.com/business-news/the-reason-behind-yes-bank-
crisis-and-what-rbi-is-doing/story-2oOJkJKx1ZUhJ5EtvKTXcK.html
MoneyControl. (2020, March 6). Yes Bank Reconstruction Scheme, 2020: Key
takeaways. Retrieved from www.moneycontrol.com:
https://www.moneycontrol.com/news/business/yes-bank-reconstruction-
scheme-2020-key-takeaways-5010921.html
Robert, O. (2020, March 6). RBI Announces Rescue Plan For Yes Bank; SBI Can Hold
49% Stake. Retrieved from www.goodreturns.in:
https://www.goodreturns.in/news/rbi-announces-scheme-of-reconstruction-for-
yes-bank-invit-1142407.html
The Yes Bank Crisis. (2020, March 7). Retrieved from www.drishtiias.com:
https://www.drishtiias.com/daily-updates/daily-news-editorials/the-yes-bank-
crisis
Misra , U. (2020, March 10). Explained: How Yes Bank ran into crisis. Retrieved from
Indianexpress.com: https://indianexpress.com/article/explained/how-yes-bank-
ran-into-crisis-rana-kapoor-arrest-6307314/
The Hindu. (2020, March 10). Yes Bank crisis explained. Retrieved from
www.thehindu.com: https://www.thehindu.com/business/yes-bank-crisis-
explained/article31030273.ece
The Economic Times. (2020, March 14). Union Cabinet approves Yes Bank
reconstruction plan. Retrieved from economictimes.indiatimes.com:
https://economictimes.indiatimes.com/industry/banking/finance/banking/union-
cabinet-approves-yes-bank-reconstruction-
plan/articleshow/74611656.cms?from=mdr
Yes Bank. (2020, March 14). sebi_lodr_regulations30_. Retrieved August 5, 2020,
from www.yesbank.in:
https://www.yesbank.in/pdf/sebi_lodr_regulations30_pdf

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