Yes Bank — From High-Growth Challenger to Near Collapse

Executive Summary

Yes Bank was founded in 2004 and grew rapidly by building a large corporate loan book. Rapid credit growth masked weakening underwriting and rising stress in parts of the corporate sector. By FY20 the bank's gross NPA ratio had jumped sharply and capital adequacy collapsed, prompting an RBI moratorium and a reconstruction led by State Bank of India.

How Yes Bank Grew

The bank pursued a growth strategy focused on fast expansion of advances and strong relationships with large corporate borrowers. Advances grew from roughly ₹75,550 crore in FY15 to ₹2.42 lakh crore in FY19 — an aggressive expansion that increased exposure to concentrated corporate credits.

Warning Signs

The following indicators signalled a material deterioration over 2018–2020.

The Bigger Problem: Loan Quality

The RBI's supervisory work highlighted a divergence between the bank's reported NPAs and the regulator's assessment (a roughly ₹3,277 crore divergence for March 2019). This under-recognition of stress meant financial statements failed to reflect true risk exposure.

Why Capital Became Critical

Falling capital adequacy reduced the bank's ability to absorb losses. Attempts to raise fresh equity failed as investor confidence weakened, producing a harmful feedback loop of provisions, losses, and constrained capital.

Liquidity and Confidence

By late 2019 the bank faced severe funding pressure: disclosures for the nine months ended Dec 2019 showed extremely weak Tier-I and overall capital metrics and very high reported NPAs on a consolidated basis. Withdrawals and market concern turned a capital problem into a liquidity and solvency crisis.

RBI Intervention

On 5 March 2020 the RBI placed Yes Bank under a moratorium and proposed a reconstruction scheme with SBI investing to obtain a controlling stake. The objective was depositor protection and franchise preservation rather than liquidation.

Corporate Governance

Governance weaknesses were central: credit concentration, weak risk oversight, delayed recognition of stressed assets and potential conflicts in management decisions. Regulatory findings and later investigations highlighted these failures; where allegations remain unresolved they should be treated separately from confirmed findings.

What Actually Went Wrong

1. Growth became more important than credit quality.
2. Risk accumulated beneath rapid expansion — some sectors and borrowers turned stressed.
3. Problems were not recognised early enough (RBI NPA divergence is a key example).
4. Capital proved insufficient to absorb the deterioration comfortably.
5. Confidence evaporated — depositors and investors withdrew support.

What Management Could Have Done Differently

• Slow loan growth to preserve underwriting standards.
• Recognise stress earlier and provision conservatively.
• Raise capital before metrics became critical.
• Strengthen independent risk oversight and board challenge.

Investor Takeaways

For investors, watch not only headline growth but the interaction of asset quality, capital, governance and funding. Key metrics include gross/net NPA, provision coverage, capital adequacy, slippage and credit concentration.

Discussion Questions

• Could Yes Bank's crisis have been prevented?
• When should management have slowed loan growth?
• Should the RBI have intervened earlier?
• How should investors detect NPA divergence earlier?
• Was SBI's reconstruction the best outcome for depositors?

Sources

• Reserve Bank of India — Yes Bank Reconstruction Scheme, 2020: https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=49479
• Yes Bank Annual Report 2019–20: https://www.yesbank.in/content/published/api/v1.1/assets/CONTBD330CE6A3224A7EA5BCC44ABAFE0AFB/native/annual_report_2019_2020_pdf.pdf
• Yes Bank Annual Report 2020–21 (NPA divergence disclosures): https://www.yesbank.in/content/published/api/v1.1/assets/CONT41F95216B7014115B6B45B50DB8831D8/native/annual_report_2020_2021_pdf.pdf