There isn’t an investor I know who hasn’t got scathed in the Yes Bank carnage. From a high price of 400 in Aug 2018 it touched 28 in less than 12 months. For easy math – its was down 94% from its peak in a year and it will have to go up by 1300% just to regain the same top – if it ever does.
Much has been said and written about the bank in magazines and papers and some Astute and Prolific Journalists such as Andy Mukherjee of Bloomberg wrote about and predicted the troubles of Yes much before the meltdown began but this piece is about the philosophy of life and the specific lessons to be learnt from Mr. Rana Kapoor s leadership and conduct.
All style and minimal substance
Sift thru the internet and a few websites and one would see that Yes Bank managed to get almost every award in the banking space. Its alleged greatness was greater than thou and when the industry and all other banks were showing signs of slowdown and stress it kept declaring stupendous numbers with the lowest NPA s in industry (even lower than HDFC bank in many quarters)
Banking is a difficult industry. NIMs are 2-5 % in best case which implies – to earn a margin of 2% you lend an amount X and hope to collect all of it back thru the life of that loan and if one large account defaults, it can wipe out the capital of the bank
I kept wondering thru the meteoric rise of the bank – are robots evaluating, disbursing and collecting loans. If the same kind of employees are working across the industry how can Yes be an outlier. At its peak Yes traded at about 6 times book and 50 PE.
Businesses that seem too good to be true are seldom that good. In its zeal to expand and a soon wanna-beHDFC, Yes took unmanageable risks and lent out money to every suspicious borrower (everything is in public domain now – the less said the better) and allegedly grew remarkably well. But most of its large borrowers had no intention / sources / business model to pay back. If you are in business or in a job – Aspire to grow in line or slightly better than the industry, you will be just fine and the power of compounding will take care of the rest. In a zeal to achieve stratospheric growth, you not only end up taking unreasonable risks but also put in jeopardy the existential probability. Greed kills.
The Business Model and its Conduct
All the readers of this piece would have taken a loan one or the other time in life and we all know that the .5% processing fees can be negotiated or even waived off at times. After all processing fees isn’t a fees for any effort or paperwork (which entails another fee), it’s part of the business model. It is heard that Yes bank developed an interesting model of charging humongous amounts of processing fees (in some cases upwards of 8-10% of the loan amount). This processing fees reflected in qtrly PnLs as fees income / other income etc and showed Yes bank to be a very intellectually superior bank that could generate such large amounts of fees as a proportion of its Net Profits. What everyone ignored was the fact that the relationship managers and senior officers on the field were expanding the lending book by taking undue risks, in some cases with collusion of the promoters, charging this large upfront fees that would make the deal look awesome from a short term perspective, earning hefty bonuses for themselves and eventually leaving the bank with rotten lemons. If Rana Kapoor was a part of this scheme, its even worse, if he was not, obviously as the Boss of the bank, he was distracted fighting his petty battles while losing the war. I would love to be wrong here but my gut tells me that all these loans would not even have a decent backing of monetizable securities. Time will tell.
Hire people not only on the basis of fancy degrees or self-proclaimed past achievements. Build teams where the team members have superior sense of responsibility and unquestionable ethics. Senior executives should have as much knowledge of philosophy and psychology as of the subject matter. For only then will they remain grounded and steer clear of designs based on the foundations of greed.
Banking industry is rife with examples of executives working on extreme short termism, earning huge bonuses and leaving a trail of destruction and sometimes orchestrating the demise of the institution. Does anyone remember Dick Fuld. He brought down Lehman and still got to keep the bonuses.
If You are at the helm and operating and building large organisations, the bonuses of your key personnel should not be tied to short term paper profits, the sustainability of which is in question. The incessant pressure of QoQ and YoY growth will most certainly create a fertile ground for executives to cook books. And they will.
It was terribly unfortunate that Mr. Ashok Kapur was killed in the 26/11 attacks in Bombay. A bank that was jointly founded by the co brothers Rana and Ashok then befell to be managed by Rana Kapoor. Obviously Rana Kapoor didn’t want to give a sliver of board space away to his co-sister. What was the point in denying the rightful board seat to Madhu Kapoor and family. Rana Kapoor fought tooth and nail to keep Madhu Kapoor away from the Yes Board. We used to hear about the law of karma and if we do a misdeed, it will come back to haunt us in our next life. God perhaps got worried that the present generation in this kalaguya doesn’t give a damn about the next life and therefore shortened the turnaround time dramatically. These days Karma comes around rather swiftly. And in less than a year when the meltdown started the diamonds of Rana Kapoor got withered away at the price of marbles.
We often forget that when we are born we are a mere 3 odd kilos and when we die we reduce to the same in the ashes that are left behind. And we cannot take anything along. The amount of time and energy that Rana Kapoor invested in fighting with his relatives would have definitely taken a large share of his mind-space and attention, while his professionals ran the bank aground. Yes came to be respected as a reasonably good, technologically advanced, and a forward looking bank. But I will have my cake and eat it too was the undoing that set the seeds of banks erosion of capital and credibility.
We teach our children a simple yet powerful lesson Sharing is Caring but forget the same ourselves along our lives – and then one day we lose it all or suddenly die. We all know that our time on this planet is limited but tend to generally disbelieve this for ourselves while remembering this for everyone else. And if we ever reflect peacefully, our significance on this ever evolving planet with millions of years of humanity and over 7 billion of us at any time on this earth is so negligible that a calculation or real reflection is humbling. So why be greedy and why not truly remember and imbibe in our personality the famous Chapter 2 , Verse 71 of Bhagwad Gita that says we came empty handed and so shall we leave.
Debt and the desire to acquire/hoard more
Pledging the entire holding of his stock to make alternate investments became a self fulfilling prophesy. When the value of the stock tanked, all the fair weather friends and lenders didn’t blink an eyelid before selling Rana’s stake.
We all know that debt is death. Debt works 24 hrs relentlessly, whereas factories and executives and organisations work for limited hrs in a day and take weekends off. The modern monetary theory that professes ever expanding debt and the new age entrepreneurs and managers who take its refuge might not be able to fully fathom the ramifications of the same. Some of the most successful investors and thinkers such as Warren Buffett have rubbished this vehemently. Avoid debt as much as possible. Depreciating assets and objects of gratification should never be purchased using debt.
Most Friends and Well wishers only offer umbrellas when its bright and sunny. The true umbrellas are seldom found when its pouring. Just remembering this is enough to keep you grounded, responsible and strategic.
When in doubt Disclose
I am reasonably certain that Rana and the top echelons of Yes knew that the loan book is far more rotten than what they were disclosing a few qtrs ago. Else why would the edifice of lies come crashing down just one qtr later when the new CEO took over. Obviously top guys were riding a tiger that they couldn’t get off without being eaten (I remember this line from Satyam’s Ramalinga Raju’s confession in Jan 2009). If these guys had taken RBI seriously and mustered the courage to come out clean rather than making up the lower than actual NPA numbers, coming clean on divergences and apologised and course corrected – which would have been possible only if they acknowledged the mistake, the markets would have been kinder.
‘When in doubt disclose’ – This is what the legendary Sh. NR Narayana Murthy says about corporate governance. Inspite of all the personal criticism he stood his ground when he smelt impropriety in a few transactions at Infosys a few years ago. And I truly respect him for that. Omkar Goswami came heavily on Mr. Murthy – but then who is Omkar Goswami anyway.
Shareholders, media and public can pardon a few bad qtrs or a bad year of financial performance but impropriety and doubt over corporate governance (even if the net effect of the same is much lesser than bad performance) is brutally punished and brands can seldom recover from that damage thereby destroying shareholder wealth permanently. Corporates and Individuals should choose to lose money, if need be, as money can be recovered easily over time but a shred of reputation if lost never comes back. What takes a lifetime to build can be destroyed in just a second.
We are all born innocent and pure. The vicissitudes of life (everyone has them) can either derail us from the General Accepted Life Principles of Propriety or keep us firmly on track and make us want to be the Human Beings, Managers and Owners that we expect others around us to be like.
Manu also writes on the Huffington Post
Manu also writes on the Huffington Post
As today I am reading this the infosys is clouded with the corporate gov. issues. I would like that infosys follow mr. murthy path and disclose the true things to shareholder.
Very gripping writing. Makes it like a thriller novel. Wonder why we never crossed paths earlier in this digital era.
Everything is so correctly captured. Keep writing great stuff.
Amazed with the in depth analysis by Manurishi and lessons learnt. Thank you.
Agree with Manurishi in depth analysis and lessons learnt. Thank you
In similar vain…
You may also find this item of interest:
Many Rushi Gupta, one if the points that you mentioned about Rana Kapoor spending all his time battling his sisterinlaw.
That always struck me as strange and I exited this scrip – just barely breaking even. This was what drove this bank into the ground. A simple case of a ego maniac killing a golden goose to eventually prove his blindness.
Not all correct ….simply hind sight . Your detailed analysis after the curtains have virtually fallen no brainer but simply detail of events already in public domain . Rana worked hard and saw fast growth not normally seen in Banking industry . Gill will now take it to another level.
Same guys suggest buy yes bank few months back.. .
Excellent comment. Put in a very simple and nice ways. All corporate people should read and realise the KARMA in this life. Really appreciated.
This is an interesting article and what I loved the most was the fact that leaders especially heads need wisdom more than anything else.
Irony is only when its rainy that such articles of wisdom start cropping up
If bad loans transform to good loans then yes again become top. So donot write off before waiting an economic boom in the process of 5 trillion economy all bad loans eventually become good. So one should wait 3 to 5 years rather saying lost for ever
Hi, constantly i used to check webpage posts here in the early hours in the daylight, for
the reason that i enjoy to gain knowledge of more and more.
Whatever written in the blog is extremely correct and comprehensive but in my opinion Rana Kapoor lost his all credibility infinancial market and extorted money and
no more which will stay no longer.
A very insightful article which throws light into the present day private sector banking practices in India. Who know that there may be more such "Yes or No" banks are behind the curtaibs!!
Great article Manu. I did not know much about Yes Bank and found this to be a good learning.
Excellent piece written by Manu Rishi, commendable indeed. The article says it all. Senior executives and decision makers in the corporate world should spend time and read this article over and over again. Kudos to Manu Rishi.
Good article NPA of crony capitalism are killing banking system
U r god
I like it
Absolutely Right said SIR
This may or may not be true. But all these are post martom reports. Nothing good to investors
This is absolutely right word by word. But present management is working very hard to come up at best.
Especially the Awards part and qualities of the top management. I had raised certain issues with the management instead of answering or justifying they closed my account. None were aware of basic banking operations. I had even questioned Care Ratings when they upgraded Yes Bank to AA+ and eventually they started degrading.
All such articles come after a massive failure.The learning is not to be too greedy.Stick with proven track record of company in the area of corporate governance.Bajaj Group,Tata Group and many more are ethical group.Be happy with 12 percent return and avoid meteoric rising companies.Small exposure to highly fast riding company.Be happy with large group and PSU.
All said and done what has the law done to punish those guilty of swindling the share holders. No body is being tried as far as the public knows.
Every bit is true. Relationship managers and team leaders executing risky deals only with the sole intention of booking hefty processing fees and earning crazy bonuses only to leave soon is 100% true. There are many such loans which were given to shell companies which are not yet out in public domain
A Good write up highlighting the importance of , inter alia, propriety in corporate governance.
Business acumen, emotional intelligence, conflict management& spiritual thought process-these are personality moats to be achievers,like it to my heart.
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