Have you seen the headlines? Yes Bank and Japan's financial giant, Sumitomo Mitsui Banking Corporation (SMBC), are the talk of the town. SMBC has just snapped up a major stake in Yes Bank, causing its share price to jump.
But what’s the real story here? This isn't just a simple business deal; it's the latest chapter in one of India's most dramatic banking sagas. From a golden beginning to a near-total collapse and a stunning rescue, the Yes Bank story is a rollercoaster. Let's break it down in simple terms.
The Golden Beginning (2003-2008)
The story starts in 2003 with two ambitious bankers, Ashok Kapur and Rana Kapoor. With their experience at Bank of America, they saw the massive potential in India's private banking sector. In 2004, they opened the first Yes Bank branch in Mumbai.
The timing was perfect. By 2005, they launched an oversubscribed IPO, raising ₹315 crores. The bank stood on three pillars:
- Retail Banking: Services for everyday people like you and me—savings accounts, FDs, small loans.
- Corporate Banking: High-value services for huge companies needing loans worth thousands of crores.
- Investment Banking: Advising wealthy corporations on how to invest their surplus cash.
From 2005 to 2008, Yes Bank was unstoppable. Deposits skyrocketed from ₹2,000 crore to ₹20,000 crore, branches grew from one to 120, and profits soared. It was the golden era.
A Tragic Turn and a Risky Strategy
The first major turning point came in 2008. In a tragic and unfortunate event, co-founder Ashok Kapur was killed during the Mumbai terror attacks. Kapur was known as a conservative, cautious banker who perfectly balanced Rana Kapoor's aggressive, risk-taking style.
With Ashok Kapur gone, Rana Kapoor was in complete control. He put the pedal to the metal, focusing almost exclusively on aggressive corporate lending. His goal was to grow the bank at any cost, and he did so by handing out massive, large-ticket loans.
On the surface, the bank looked healthier than ever between 2009 and 2014. The stock price shot up from ₹50 to ₹550, and the loan book was growing by a staggering 30% every year. But beneath the surface, a huge problem was brewing.
The Hidden Flaw: The CASA Ratio Crisis
The bank's biggest weakness was its abysmally low CASA Ratio.
What is CASA? It stands for Current Account Savings Account. This is the cheapest source of money for any bank. Why?
- Current Accounts: Pay 0% interest.
- Savings Accounts: Pay very low interest (around 2-3%).
A bank with a high CASA ratio (like SBI, which has around 45%) has a strong foundation because it gets its funds cheaply. It can then lend this money out at higher rates and make a healthy profit.
Rana Kapoor had no interest in retail banking, so Yes Bank's CASA ratio was less than 10%. The bank was funding its massive loans by borrowing money at high interest rates (7-8%) from other banks or through expensive Fixed Deposits. They were borrowing expensively and lending recklessly to corporates with shaky credit histories. It was a ticking time bomb.
The Collapse: When the Truth Came Out
By 2014, some of these massive loans began to go bad. But Yes Bank hid the problem. They kept reporting sparklingly clean books to the RBI, claiming their Non-Performing Assets (NPAs), or bad loans, were a tiny 0.41%.
Then, in 2015, the RBI changed the game. It introduced the Asset Quality Review (AQR), meaning the RBI would now audit the banks itself. The truth began to tumble out:
- RBI's 2016 Audit: Revealed Yes Bank's actual NPA was 3.5%, not 0.41%.
- RBI's 2017 Audit: Showed the NPA had jumped to 7.4%.
The market was spooked. The share price crashed from ₹350 in 2018 to just ₹40 in 2019. The RBI finally removed Rana Kapoor. The new CEO, Ravneet Gill, uncovered an even bigger mess, revealing NPAs were over 10% and exposing a web of shell companies used for fraud.
By 2020, panic set in. People lined up to withdraw their life savings. The RBI had to step in and limit withdrawals to ₹50,000 per month. The bank was on the brink of collapse.
The Rescue and the SMBC Lifeline
On March 13, 2020, a rescue mission was launched. A consortium led by the State Bank of India (SBI) bailed out Yes Bank. SBI bought a 49% stake for a bargain price of ₹7,250 crores. Other banks like ICICI, HDFC, and Axis also pitched in. Rana Kapoor was arrested, and the bank was stabilized.
For the next few years, SBI slowly sold parts of its stake, making a handsome profit while allowing the bank to find its feet.
This brings us to today's big news. Japan's SMBC has seen a golden opportunity. In a massive vote of confidence, it has acquired nearly 25% of Yes Bank. They bought a large chunk from SBI and other investors, signaling strong belief in the bank's future.
Current Shareholding (Approx.):
- Foreign Investors (led by SMBC): ~25%
- Domestic Investors (SBI, ICICI, etc.): ~40%
- Retail Investors (You and me): ~34%
Why This Deal is a Big Deal
This isn't just another investment. It's a sign of a powerful revival.
- Global Confidence: A respected global bank like SMBC investing billions shows that Yes Bank is on the right track.
- Stronger Finances: The deal injects fresh capital and strengthens the bank's financial position.
- Boost for India: The investment flows into India as foreign currency, boosting the country's forex reserves.
For Yes Bank, this is a new chapter. The entry of a global giant could bring better management practices and a renewed focus on sustainable growth. The rollercoaster ride seems to be heading upwards once again.
Disclaimer: This article is for informational purposes only and should not be considered financial advice. Please consult with a certified financial advisor before making any investment decisions.