YES Bank’s Distressed Loan Portfolio: Understanding What Went Wrong at the Lender

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YES Bank announced on Friday that it has signed an agreement with JCF ARC LLC and JC Flowers Asset Reconstruction (JC Flowers ARC) for a partnership to sell the private lender’s stressed assets valued at Rs 48,000 crore.

The bank, in August 2021, launched a call for applications for the creation of an ARC, planning to hold 20% of the capital. On the objection of the Reserve Bank of India (RBI), it agreed to hold a minority stake in the entity.


What happened at YES Bank?

The bank was launched on January 21, 2004 by Rana Kapur and her brother-in-law, Ashok Kapoor. In 2005, the bank went public. Ashok died in the Mumbai terrorist attacks in 2008. Rana Kapur led the bank as CEO after 2008.

In 2014, the bank’s gross non-performing assets (NPA) stood at 0.31%. In 2017, the bank was included in BSE’s benchmark Sensex. It was valued at over 1 trillion rupees.

In 2014, the RBI launched a cleanup of the banking sector and began identifying NPAs of lenders. That’s when the YES Bank crisis erupted.

RBI discovered that YES Bank’s statements on NPAs and the central bank’s estimates did not match. The lender was providing loans to already struggling businesses, such as Anil Ambani Group and Dewan Housing Finance Corporation Ltd (DHFL). The bank was asked to admit more NPAs on its balance sheet.

However, the crisis spread after YES customers started withdrawing their deposits. Tirupati temple trust, one of the biggest depositors in the bank, withdrew Rs 1,300 crore in 2019. According to a report by Indian Express, depositors withdrew Rs 18,000 crore from the bank between March 2019 and September 2019 Rana Kapur stepped down as CEO in January 2019.

On March 5, 2020, the RBI replaced the bank’s board and capped withdrawals at Rs 50,000. It also asked the State Bank of India (SBI) to obtain a 49% stake in the bank to restructure it.

RBI has also appointed Prashant Kumar, a former senior executive of SBI, as a director of YES Bank. He then became CEO of the bank on March 6, 2020.

The SBI owns 49% of YES Bank and has appointed JCF ARC LLC and JC Flowers Asset Reconstruction Private Limited (JC Flowers ARC) to assist it in selling the bad debts.

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