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THE ICARUS PARADOX IN THE INDIAN BANKING SECTOR: THE STORY OF YES
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International Journal of Research in Management & Social Science
Volume 9, Issue 4 October - December 2021 ISSN 2322 - 0899

THE ICARUS PARADOX IN THE INDIAN BANKING SECTOR: THE STORY OF YES BANK

P David Jawahar1, S Gayathri2, Ankur Agarwal3, Paridhi Taparia4 and Sachin Singh Chauhan5
Professor1, Sr. Assistant Professor2, PGDM II Year Student3,4,5, Xavier Institute of Management &
Entrepreneurship, Chennai

ABSTRACT
Yes Bank started its journey in 1999 and the bank had its IPO in 2011. The ever ambitious Rana Kapoor,
always said Yes, synonymous with the bank’s name, to risky loans and successfully recovered them. The bank
continuously offered loans to business houses that were experiencing huge financial difficulties. Icarus paradox
is a term coined by Danny miller in 1990 in his book, by the same name. This is from Greek mythology where
Icarus had wings made of wax, which helped him to escape from danger. When he got so ambitious and went
near the sun, the very wings which protected him, melted and ultimately led to his demise. This myth is used to
denote the business failure of organisations with phenomenal success in a short period and then crash suddenly,
due to complacency or other blunders. The same thing had occurred with Yes bank where it drew phenomenal
success on lending to risky companies and continued underestimating the forthcoming risks and soared very
high. In 2017, the bank reported gross amount of bad loans. The bank became vulnerable as a result of
prolonged poor credit cycle The bank was not ready to accept its mistake and continued under reporting of its
stressed loans. Yes Bank reported its maiden loss in March 2019 quarter after a huge damage had been done to
multiple stakeholders and the Indian stock market as such.
Keywords : Yes Bank, bad loans, Non-performing Assets (NPAs), crisis, Governance
INTRODUCTION
Yes Bank is a high-quality, customer-focused, and service-oriented financial institution. It has transformed into
a ‘Full Service Commercial Bank,' offering a comprehensive range of products, services, and technology-driven
digital offerings to corporate, MSME, and retail customers since its inception in 2004. The Investment banking,
Merchant banking, and Brokerage activities are handled by Yes Securities, and its Mutual Fund business is
handled by Yes Asset Management (India) Limited, both of which are wholly owned subsidiaries of the Bank.
Yes Bank has been acknowledged by prestigious media houses and global advisory firms as one of the Top and
Fastest Growing Banks in various Indian Banking League Tables, and has won numerous national and
international awards for our various businesses, including Corporate Investment Banking, Treasury, Transaction
Banking, and Sustainable practises through Responsible Banking. The bank made a phenomenal growth and
then had a unimaginable downfall, which would be discussed in this paper.
REVIEW OF LITERATURE
Understanding market performance and its impact on financial stability is the macro perspective in the literature,
while understanding the efficiency of individual business units is the micro perspective. The aim of this study is
to measure the efficiency of Indian commercial banks at the micro level by adding nonperforming assets (NPAs)
and assessing their effect on bank income.
According to Rathore and et al. (2016), there is a positive relationship between overall advances, net income,
and bank NPAs as a result of bank mismanagement, which is not healthy. They discovered that the positive
relationship between NPA and income is due to poor client selection. Owing to a shortage of capital, banks are
unable to provide loans to new clients, which has a negative impact on their liquidity. They advised banks to
conduct proper pre-sanction evaluations and enforce forced disbursement controls in order to minimize
nonperforming assets (NPAs).
The efficiency levels of public sector banks and private banks have been reversing in recent years, with private
banks being more competitive than public sector banks such as the State Bank of India (SBI, including its
associate banks). Tzeremes used the directional distance function to examine the efficiency of the Indian
banking industry from 2004 to 2012. He discovered that the financial crisis has had no impact on the efficiency
of Indian banks. Private banks, on the other hand, outperformed public and international banks.
The Indian banking system has been troubled by an increase in nonperforming assets (NPAs) in recent years,
resulting in a vicious cycle that threatens its long-term viability. Though private and foreign banks have been
blamed for the majority of frauds, Chakrabarty (2013) stated in his speech that public sector banks have
contributed the most to the total amount involved.
The stress of asset quality and marginal capitalization faced by public sector banks, as well as various
recommendations to resolve these issues, were among the key findings in RBI . Rajan (2014) emphasized the
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Volume 9, Issue 4 October - December 2021 ISSN 2322 - 0899

importance of good governance and more autonomy for public sector banks in order to boost their
competitiveness and make it easier for them to raise capital from markets. In response to the widespread belief
that tightening regulations would stifle business opportunities, regulations do not appear to be a barrier to banks'
continued operation following the crisis.
Early tracking and control of lent funds, according to Barge (2012), is a requirement of the hour. To ensure that
the asset does not become a non-performing asset, the study proposes a number of steps, including tighter
monitoring of end-use funds, knowledge about the borrower's credit history, and assisting borrowers in
developing entrepreneurial skills.
Sengupta and Vardhan (2017) compared two post-liberalisation banking crisis episodes, one in the late 1990s
and the other after the 2008 global financial crisis, both of which raised the problem of nonperforming assets
(NPAs). Good governance, constructive banking regulations, and a strong legal structure for NPA resolution,
according to the authors, will help solve the problem of NPAs. Regulatory leniency, on the other hand, would
have a negative impact on the financial crisis.
Bhawna Mittal (2019) described the impact of rising NPA in India, claiming that NPA has risen over the last
decade. It means that a substantial portion of the bank's assets have ceased to produce revenue, lowering the
bank's profitability and capacity to generate additional credits. Bank profitability declines are triggering
negative economic shocks and placing consumers' deposits at risk.
Reasons behind the YES Bank Crisis
Failure in Asset Growth: The YES bank’s loan on 31st March 2014 was Rs. 55,633 crores and its deposits were
Rs. 74,192 crores. Since then, the loan has risen to nearly four times as much, at Rs.2.25 trillion as of 30th
September 2019. The bank's deposit, on the other hand, has not grown at the same rate, having risen by less than
three times to Rs.2.10 trillion. The asset quality of YES Bank also gets worsened and it came under RBIs
scrutiny.
Non-Performing Assets (NPAs): In 2017 and 2018, the RBI conducted an asset quality analysis of YES Bank,
which resulted in a rise in the bank's impaired loans ratio and the discovery of major governance lapses,
resulting in a total change in management. After that the bank struggled to cope with its capitalization issues.
The YES bank also suffered from doubling in its gross NPAs between the months of April and September 2019
to Rs. 17,134 crores.
Consequences of the NBFCs Crisis: The Non-Banking Financial Companies (NBFC) crisis started with the
unraveling of the crisis faced by the Infrastructure Leasing & Financial Services (IL&FS) and then extended to
Dewan Housing Finance Limited (DHFL). As of September 2019, YES bank's total exposure to IL&FS and
DHFL was 11.5%. In April 2019, the bank had approximately 4.1% of its total loans as potential non-
performing loans over the next 12 months.
Governance Issues: The YES bank had to face several governance-related issues that led to its decline. Uttam
Prakash Agarwal, one of the independent directors, resigned in January 2020, citing the lender's deteriorating
corporate governance standards and enforcement failure. The bank under-reported NPAs of Rs. 3277 crores in
2018-19, leading the RBI to appoint R Gandhi, a former deputy governor, to the bank's board of directors. In
January 2019, Rana Kapoor, one of the YES bank's founders, was asked to step down as chief executive.
Governance issues had become a regular phenomenon in the Indian banking sector with a less vigilant regulator.
(Gayathri & Mangaiyakarasi, 2018)
Excessive Withdrawals: The YES bank’s financial condition discouraged many depositors from keeping funds
in the bank over the long term. As a result, the bank experienced a steady withdrawal of deposits, putting a
strain on its balance sheet and worsening its problems.
Banking Sector Challenges
The YES Bank crisis arose as a result of the Indian economy's problems, which resulted in an increase in bad
loans. The YES Bank crisis reflects badly at the RBI functioning. It revealed that the apex bank took too long to
notice governance issues at IL&FS, DHFL, and YES Bank. The RBI's takeover of YES Bank did nothing to
restore depositor trust in the bank. The apex bank's use of a moratorium to resolve the crisis just made
depositors more suspicious. Choosing SBI as the investor to address this crisis shows the shortage of
alternatives the government had in this situation. This is because, as a result of the recent bank merger, the
majority of PSBs are in a time of transformation. As a result, India's largest bank, SBI, has been tasked with
bailing out YES Bank. Aside from these, the crisis highlights the banking sector's problems.

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Volume 9, Issue 4 October - December 2021 ISSN 2322 - 0899

Consequences of YES Bank crisis

Depositors may shift their money to public-sector banks, which are currently more reluctant to lend. Select
private banks' deposit growth may slow as a result of the crisis, resulting in lower credit growth. Private sector
banks would be forced to give higher deposit rates, raising the credit rate in the process. Both private and public
banks will be unable to meet India's credit needs, which are critical to the country's goal of becoming a $5
trillion economy by 2024-25. The YES Bank crisis could cause chaos on India's economy, which is already
slowing.
RBI response to this crisis
The RBI, after taking over the YES Bank’s management, had imposed a moratorium. It had also announced
the draft “Scheme of Reconstruction”, which involves the following:All YES Bank deposits will be treated the
same as before, with the same terms and conditions, and will be unaffected by the scheme. The YES
Bank’s authorized capital will be increased to Rs. 5,000 crores (from Rs.600 crore). The paid-up capital will be
increased to Rs. 4,800 crores, comprising of 24 billion shares of Rs. 2 face value. Currently, there are 2.55
billion fully paid-up shares issued, totaling Rs. 510 crores. The SBI has agreed to buy a 49 percent stake, or
11.76 billion shares, in the government's enlarged stock. The plan calls for the board of YES Bank to be
reconstituted, with a new CEO and managing director. For at least a year, all workers of the reconstituted bank
would be paid the same salary. The bank will be able to open new branches or shut down old ones, and the
offices and branches will continue to operate as before. The bank's instruments that qualify for Additional Tier 1
(AT1) capital under the Basel III system will be permanently written down under the scheme. The bank’s AT1
bonds are worth Rs. 8,800 crores. Separately, the RBI also decided to extend a loan of Rs.10,000 crores to the
YES Bank as the lender of last resort (LOLR) against the government’s. This 90-day loan will be offered at a
bank rate of 5.4% plus 3% to meet the immediate liquidity needs of the bank.
Table 1: COMPARATIVE ANALYSIS OF FINANCIAL STATEMENTS

Financial Year Interest Earned (₹) Interest Expended (₹) Net Profit / (Loss) (₹)
2005-06 1,90,18,00,000 1,04,71,52,000 55,32,45,000
2006-07 5,87,60,94,000 41,62,566,000 94,36,51,000
2007-08 13,10,82,57,000 9,74,10,86,000 2,00,02,43,000
2008-09 20,03,31,84,000 14,92,13,56,000 3,03,84,20,000
2009-10 23,69,70,97,000 15,81,75,70,000 4,77,73,93,000
2010-11 40,41,74,73,000 27,94,81,74,000 7,27,13,78,000
2011-12 63,07,35,81,000 46,91,72,12,000 9,76,99,84,000
2012-13 82,93,99,91,000 60,75,20,92,000 13,00,68,07,000
2013-14 99,81,35,21,000 72,65,09,18,000 16,17,78,02,000
2014-15 1,15,72,00,65,000 80,84,16,93,000 20,05,36,14,000
2015-16 1,35,33,44,19,000 89,66,71,93,000 25,39,44,66,000
2016-17 1,64,24,64,37,000 1,06,27,33,67,000 33,30,09,64,000
2017-18 2,02,67,42,16,000 1,25,30,36,24,000 42,24,56,37,000
2018-19 2,96,24,74,73,000 1,98,15,71,60,000 17,20,27,88,000
2019-20 2,60,66,60,39,000 1,92,61,37,25,000 (1,64,18,03,10,000)

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International Journal of Research in Management & Social Science
Volume 9, Issue 4 October - December 2021 ISSN 2322 - 0899

Figure 1: Comparative Analysis of Financial Statements

Source : Compilation by Authors
The bank reported constant growth in the business & profits from the year of its establishment (2004) until
2018. Thereafter because of the change in the management as a result of the RBI ruling the bank reported a
steep decline in the Net Profits because there was suppression by the management while reporting the
Provisions.
Table 2: COMPARATIVE ANALYSIS OF NPA PROVISIONS
Financial Year NPA Provisions (₹)
2005-06 -
2006-07 -
2007-08 2,43,71,000
2008-09 57,06,68,000
2009-10 87,60,39,000
2010-11 39,26,28,000
2011-12 11,56,77,000
2012-13 1,51,66,88,000
2013-14 1,35,81,69,000
2014-15 1,30,00,99,000
2015-16 4,97,90,20,000
2016-17 6,63,44,14,000
2017-18 10,78,82,87,000
2018-19 25,66,95,35,000
2019-20 2,78,06,03,57,000

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International Journal of Research in Management & Social Science
Volume 9, Issue 4 October - December 2021 ISSN 2322 - 0899

Figure 2: Comparative Analysis of NPA provisions

Source: Compilation by Authors
The NPA’s increased significantly in the past 2 years because of under reporting in the Financial Statements by
the management.
5W2H Analysis of the Yes Bank Crisis
What happened?
There had been concerns about the management under promoter Rana Kapoor after the death of one of its co-
founders in 2008. The bank often provided loans to businesses that were unable to obtain credit elsewhere, a
strategy that allowed it to expand its operations while also introducing significant risk.
These chickens arrived home to roost as the economy started to crumble. YES Bank has lent money to
businesses like Cafe Coffee Day, CG Power, Jet Airways, DHFL, Indiabulls Housing Finance, and IL&FS over
the years, all of which have gone bankrupt and caused a lot of stress in India's financial sector. The Reserve
Bank of India had previously chastised the bank for underreporting its non-performing assets (NPAs), which
stood at 7.4% in September 2019.
When did it start happening?
On March 31, 2014, the bank had a loan book of Rs 55,633 crore and deposits of Rs 74,192 crore. Since then,
the loan book has nearly quadrupled in size, reaching Rs 2.25 trillion on September 30, 2019. According to the
CBI's first information report, the scam began in April and June 2018 when YES Bank invested Rs 3,700 crore
in DHFL's debt-ridden short-term debentures.
Who Suffered the most?
Customers were most affected when they were under RBI obligations and were unable to withdraw their own
money from the bank. Investors who invested in the bank were and continue to be the most affected.
Where did it happen?
In several parts of the country.
How many parts involved?
Non-performing assets, Overflow of Liquidity.
How much is the loss?
Around Rs. 16,418 crores according to YES bank balance sheet 2019-2020.
Why is it a problem?
The internal banking system is not well-organized and susceptible to fraud. YES Bank is now liable for the
amount of the fraud. YES Bank also supplied online transaction infrastructure, which was severely harmed.
Repercussion of the crisis on Stock Market
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International Journal of Research in Management & Social Science
Volume 9, Issue 4 October - December 2021 ISSN 2322 - 0899

The crisis in yes bank had a huge impact on the Indian Stock market where the stock prices of many companies
plummeted and some of them are covered here.
Max Financial Services Ltd.
Due to its exposure to crisis-hit YES Bank Ltd., shares of Max Financial Services Ltd. have dropped the most
since July 5, 2016, dropping as much as 19.32 percent to Rs. 488.25 per share. In a conference call, the firm said
it has a Rs. 2,000 crore Tier-II bond exposure to YES Bank, with a Rs. 1,000 crore shareholder exposure and the
rest held by policyholders. However, the company claims that because these bonds will be held until maturity,
no markdown in the profit and loss account is required. Only when there is a default on interest payments or
when the rating is downgraded to 'D' will there be a mark-to-market loss, according to the report.The company
stated that if necessary, it would contact the Reserve Bank of India and act in the best interests of all parties
involved. Tier-II bonds have never been touched in the banking system's history, it claims.
Indiabulls Housing Finance
YES Bank owes Indiabulls Housing Finance Rs 662 crore in bonds, according to the company, which has no
term loans outstanding with the lender.In a regulatory filing, YES Bank stated that it owes Indiabulls Housing
Finance Rs 662 crore in additional tier 1 (AT-1) bonds.YES Bank made its AT-1 bond investments in 2017, as
part of its treasury management of over Rs 20,000 crore in cash and when the bank was valued at over USD 10
billion, according to the statement.YES Bank has no term loans outstanding with Indiabulls Housing Finance,
according to the company.
YES Bank has been put under a moratorium until April 3, during which period customers will not be able to
withdraw more than Rs 50,000, and the board has been replaced by the Reserve Bank.
Dewan Housing Finance Limited (DHFL)
The CBI registered a case against the former MD and CEO of YES Bank, Dewan Housing Finance Limited
(DHFL), as well as its promoter Kapil Wadhawan, on Sunday, just hours after the Enforcement Director
arrested YES Bank's founder Rana Kapoor. In its FIR, the agency also called Doit Urban Ventures (India)
Limited, which covers charges under the Prevention and Corruption Act and other Indian Penal Code sections.
The CBI has launched an investigation into DHFL's short-term debentures, in which YES Bank invested Rs
3,700 crore between April and June 2018. The inquiry is part of a larger probe into whether YES Bank
purchased DHFL debentures in exchange for which the company was awarded loans worth Rs 600 crore against
a collateral security of around Rs 40 crore.
The loan amount later became non-performing assets, and it is claimed that DHFL's Wadhawan paid the
Kapoor’s Rs. 600 crore in kickbacks in the form of a loan of a similar amount to Doit Urban Ventures, a
company owned by his daughters Rakhee Kapoor Tandon, Roshni Kapoor, and Radha Kapoor.
YES Bank allegedly did not take action to recover the NPA-turned loans from DHFL, according to the
allegations. The ED arrested Rana Kapoor on Sunday morning after over 30 hours of questioning in connection
with a money laundering case involving DHFL. A Mumbai court later sentenced him to three days in ED
custody.
Snapshot of the rise, fall and revival
Genesis : Rana Kapoor & Ashok Kapur founded Yes Bank in 2004
Yes Bank's journey began in 1999 when Rana Kapoor partnered with his brother-in-law Ashok Kapur and
Harkirat Singh with Dutch Rabobank to set up Rabo India Finance. With support from Rabobank, the trio
received in-principle approval to set up a bank in 2002, and after Harkirat's exit the next year, Rana and Ashok
founded Yes Bank in 2004.
Rise: The bank grew in popularity by granting risky loans
The lender grew in popularity as it never said no to risky loans. Rana, a veteran banker, used his rich network to
lend and recover loans.In 2005, Yes Bank entered the stock market with a Rs. 300 crore IPO.In 2011, the bank
received the award for "India's Fastest Growing Bank of the Year" at the Bloomberg UTV Financial Leadership
Awards 2011.
Fall: The bank lost popularity in recent years
In 2017, the bank reported a divergence in gross bad loans of Rs 6,355 crore.In June 2018, Yes Bank
shareholders approved Rana Kapoor's reappointment as the lender's Managing Director (MD) and CEO for three

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Volume 9, Issue 4 October - December 2021 ISSN 2322 - 0899

years starting September 1.However, in September, the RBI cut his tenure till January 31, 2019.The bank's
shares tanked by over 30% the day the announcement was made.
Continued Downfall: As the bank’s governance crisis continued, its rating fell
As Yes Bank struggled to find a new CEO, the lender missed second-quarter profit estimates. Meanwhile,
provisions for bad loans and mark-to-market losses doubled and the bank's asset quality deteriorated.A string of
resignations followed including Chairperson Ashok Chawla, independent directors Vasant Gujarathi and
Rentala Chandrashekhar, etc.Subsequently, rating agency Moody's downrated the lender.
Bad loans marred Yes Bank's Balance Sheet
Yes Bank's balance sheet was also marred by bad loans, including Infrastructure Leasing and Financial Services
(IL&FS), Anil Ambani Group, GC Power, Cox & Kings, Altico, CCD, Essel Group, Essar Power, Vardaraj
Cement, Radius Developers, and Mantri Group.
Revival: Bank proposed $ 2 billion stake sale
In November 2019, RBI detected divergence in Gross NPA’s reported by Yes Bank.The same month, the bank’s
board approved plan ro raise $ 2 billion, with Canadian billionaire Erwin Singh Braich buying $ 1.2 billion
worth of shares.Braich’s investment was rejected by the bank & it proposed another $ 1.4 billion share sale. The
bank’s shares & Moody’s rating continued to fall.
DISCUSSIONS
There were numerous Governance failures in India followed by hue and cry from the investors, public and
regulatory agencies. But it would be conveniently forgotten in few months by other persistent problems. The
lessons are seldom learnt on the Governance front. There must be a clear separation of ownership and control. In
the case of YES bank, it had been very blurred as Rana Kapoor who entertained his own ambitions, putting the
interest of all other stakeholders in danger. Banking sector is built on huge trust. A constant vigil must be
exerted by all stakeholders including board of Directors, auditors and regulators. Extreme reliability on an
individual’s supremacy and stardom shall be questioned.
Inspite of having strong directors, the yes bank had miserably failed in governance because of the lack of
prudence and vigilance on the part of Directors and Auditors. By the time RBI came into the picture, the
ultimate damage has been done and RBI has to come up with rigorous standards for auditing. The SBI and other
private sector banks had bailed out Yes bank, but this is also an indirect use pf public resources to bail out a
failed private bank, due to the mistake of Rana Kapoor. These bail outs take a toll on the tax payer, the recent
bail out of Punjab National bank and then Yes bank. The bail out was inevitable to preserve the integrity of the
financial system and economy. Numerous red flags had been missed out in case of Yes bank by all stakeholders,
including investors and it had resulted in a very costly mistake. Such bail outs should result in strong
Governance reforms and increased monitoring by the regulators and all we could do is only hope.
REFERENCES
1. Barge, A. (2012), “NPA management in banks: an Indian perspective”, IBMRD's Journal of Management
and Research, Vol. 1, pp. 89-91.
2. Chakrabarty, K. C. (2013). Two decades of credit management in banks: looking back and moving
ahead. RBI Bull, 67, 17-40.
3. Gayathri, S. & Mangaiyakarasi (2018). A critical analysis of the Punjab National Bank Scam and its
implications. International Journal of Pure and Applied Mathematics, 119(12), 14853-14866.
4. Mittal Bhawna, (2019) The Snowball effects of NPA on Indian Economy -Journal of the Gujarat Research
Society, volume 21, issue 9, p. 374 – 858
5. Rajan 2014. Financial Inclusion—Technology, Institutions, and Policies. Keynote Address at the National
Association of Software and Services Companies India Leadership Forum. Mumbai. 12 February.
6. Rathore, R. (2016). Impact of Non-Performing Assets on Banking Industry: The Indian
Perspective. International journal for innovative research in multidisciplinary field, 2(07), 180-187.
7. Sengupta, R., & Vardhan, H. (2017). Non-performing assets in Indian Banks: This time it is different.
8. Tzeremes, N. G. (2015). Efficiency dynamics in Indian banking: A conditional directional distance
approach. European Journal of Operational Research, 240(3), 807-818.

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