The Banker Who Crushed His Diamonds
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The application was supported by a letter from the chairman of the managing board of Rabobank International Holding, stating that it would give the three partners its fullest support in the successful incorporation of the proposed bank.
On 7 February 2002, the RBI granted ‘In Principle’ approval to establish a new bank in the private sector under the Banking Regulation Act. This approval was valid for a period of one year. The approval required that the new banking company be incorporated with a memorandum and articles of association besides being required to mobilize an initial minimum paid-up capital of Rs 200 crore.
The press release issued by the RBI at the time of granting the ‘In-Principle’ approval stated that Ashok Kapur and two other banking professionals (Harkirat Singh and Rana Kapoor), with Rabobank International Holding, have applied for a licence. The press release further said that a high-level committee had recommended the applications of Ashok Kapur and two other banking professionals with Rabobank International Holding as being suitable for setting up new banks in the private sector.
On 4 February 2003, an application was made to the RBI for an extension to the ‘In-Principle’ approval in order to enable the bank to recruit key senior management staff, develop policies and procedures, finalize information-technology platforms and to select premises for corporate and regional offices. The RBI, on 25 February 2003, extended the approval for a period of six months until 6 August 2003, within which time period the bank was required to complete all formalities for commencing banking operations.
Harkirat Singh left the project by April 2003. However, Ashok Kapur, Rana Kapoor and Rabobank International Holding confirmed their respective decisions to participate in the new private sector bank through separate letters to the RBI dated 28 April 2003 and 18 June 2003 respectively.
In order to complete all formalities for commencing operations, such as financial closure and human resource recruitment, the promoters sought another extension on 25 July 2003. The RBI, on 6 August 2003, further extended the approval up to 30 November to enable the bank to finalize the financial arrangements to complete the equity participation. On 11 December 2003, the RBI was informed of the participation of three private equity investors (Citicorp International Finance Corporation, ChrysCapital and AIF Capital) to achieve the financial closure of the bank.
On 29 December 2003, the RBI decided to further extend the approval up to 29 February 2004.
In March 2004, the bank achieved the mobilization of the initial minimum paid-up capital of Rs 200 crore. Further, the promoters, through their letter dated 29 March 2004, made a final application for a banking licence under Section 22 (1) of the Banking Regulation Act, 1949, providing complete details of the capital structure, the composition of board of directors, the proposed human resources, information technology, premises and legal policies and the business and financial plan.
On 24 May 2004, the RBI, under Section 22 (1) of the Banking Regulation Act, 1949, granted the bank the licence to commence banking operations in India on certain terms and conditions, including a term that 49 per cent of its pre-issue share capital held by the promoters (domestic and foreign) was to be locked-in for five years from the date of the licencing of the bank. In this case, the 49 per cent had been met by locking-in equity shares representing 29 per cent of the share capital held by Rana Kapoor and Ashok Kapur and equity shares representing 20 per cent of the share capital held by Rabobank International Holding.
Again, on 2 September 2004, the RBI included the bank in the Second Schedule of the RBI Act, 1934, with effect from 21 August 2004. A corresponding notification was published in the Gazette of India (Part III, Section 4) on 16 August 2004.
Source: Draft Red Herring Prospectus
By the same date, the bank had opened a branch.
Ownership and IPO
Other than these guys, shareholders at the unlisted YES Bank included H. Srikrishnan (the current head of Jio Payments Bank and Rana Kapoor’s colleague at Bank of America) and Ajay Mahajan (the current CEO and MD of CARE Ratings). But this was set to alter soon.
The structure was proposed to change as the bank planned an initial public offering (IPO). The shares of all the promoters would have come down by seven percentage points each as explained in the next figure.
Source: Draft Red Herring Prospectus
The banking licence granted by the RBI required that the promoter holding in excess of 49 per cent should be diluted after one year of the bank’s operation. It was also stipulated that the paid-up capital (which before the IPO stood at Rs 200 crore) must be raised to Rs 300 crore within three years of commencement of business.
The promoters, the promoter group companies and Rabobank International Holding, at the same time, executed a share subscription agreement (SSA) dated 5 November 2003, in which they agreed to subscribe to the equity shares along with the private equity investors (with whom a separate agreement was to be executed).
Under the terms of the SSA, the promoters agreed that a substantial part of the consideration received by them from the sale of their shares in Rabo India would be applied towards the subscription of the equity shares. The promoters had sold their stake in Rabo India (a subsidiary of Rabobank International) earlier in 2003, for about Rs 40 crore each.
To fill up for the remaining capital, Mags Finvest and Morgan Capital (holding companies owned by Ashok Kapur and Rana Kapoor respectively) were granted a loan of Rs 17 crore to fill in for the full capital.
As part of the SSA, the promoters agreed not to transfer their shareholding in Mags or Morgan, until the loans taken by Mags and Morgan from Rabobank International Holding for the purpose of the purchase of the equity were repaid.
The loan was to be utilized for subscribing to the 17 million equity shares of the bank as provided in the SSA. This loan had to be repaid within three years of the disbursement of the loan amounts. These loans were disbursed on 10 March 2004.
As security for the loan amount, each entity executed demand promissory notes—a signed document containing a promise to pay a stated sum to a specified person or the bearer at a specified date or on demand—in favour of Rabobank International Holding. Further, the promoters executed personal guarantees and demand promissory notes as security for loans to Mags and Morgan.
In case of a default, the shares held by Mags and Morgan, equivalent to the outstanding amount, were to be taken over a fair market value by Rabobank.
On 6 August 2003, the RBI had permitted the loans and advised that the loans availed from Rabobank International Holding should not be secured against the shares of the company. Subsequently, the bank had, by its letter dated 5 March 2004, intimated the RBI of the drawdown of the loans in accordance with the terms of the RBI letter dated 6 August 2003.
A drawdown loan allows you to borrow ‘in chunks’ and repay the full amount borrowed, rather than taking a loan for a larger amount that you might not need.
On 22 May 2004, the RBI asked that the loan agreements be filed with it. It also said that these loans should have a minimum average maturity of three years and that Mags and Morgan would be required to submit monthly returns to the RBI.
The loan agreements were filed with the RBI. On 23 and 24 June 2004, the RBI allotted loan registration numbers to these agreements.
Finally, the IPO of India’s new-age bank opened on 15 June 2005 and closed six days later. DSP Merrill Lynch Ltd and Enam Financial Consultants Pvt. Ltd were the book running lead managers to the issue and Karvy Computershare Ltd was the registrar. A total of 7 crore shares were on offer in the price band of Rs 38 to Rs 45. Of the total number of shares, 3.5 crore shares, or 50 per cent of the total issue, is reserved for qualified institutional buyers. The retail portion had been pegged at 25 per cent of the total offering. The bidding amount in the retail segment could not exceed Rs 50,000 per investor.
The retail portion of the issue was oversubscribed by 9.96 times and the non-institutional portion was oversubscribed by 43.68 times.
TIMELINE OF YES BANK
2001
Application to the RBI for a licence to start a new private sector bank
2002
Receipt of an ‘In-Principle’ approval from the RBI to establish the bank
2003
February: Extension of the ‘In-Principle’ approval for a period of six months
August: Further extension of the approval by the RBI till November 2003
November: Incorporation of the bank
December: Further extension of the approval for a period up to 29 February 2004 in order for the proposed bank to complete all financial arrangements
2004
10 March: Infusion of capital by the promoters and the private equity investors, and realization of the initial minimum paid-up capital of Rs 200 crore
29 March: Final application for banking licence under Section 22 (1) of the Banking Regulation Act made by the promoters
May: Licence to commence commercial branching received from the RBI
16 August: First branch established at Nehru Centre
21 August: Included in the Second Schedule of the RBI Act
23 August: Launch of wholesale and business banking
23 September: Launch of the financial markets services
14 October: Launch of transaction banking
2005
27 January: Second branch established at Nyaya Marg, Chanakyapuri, New Delhi
May: Forays into retail banking with the launch of international gold and silver debit card in partnership with Mastercard.
YES Bank announced that it will enter the capital market with its IPO on 15 June to raise Rs 266–315 crore. The issue closed on 21 June. The bank offered 7 crore equity shares of Rs 10 face value through a 100 per cent book-building route. The price band for the shares was fixed at Rs 38 to Rs 45
YES Bank’s initial public offer oversold 8.27 times on day 1
The YES Bank IPO was priced at Rs 45 per share as it received the maximum number of bids at this price. The IPO, which was through a book-building route, had a price band of Rs 38 to Rs 45 per share. The IPO received 2,57,000 bids, resulting in a subscription of over thirty times
YES Bank launches international gold, silver debit card
2006
6 December: YES Bank launches YES Microfinance
2007
April: YES Bank received the Euromoney-Trade Finance ‘Deal of The Year’ award for a structured and innovative rural financing solution in providing loans to over 2000 nomadic honey-bee farmers in Jammu and Kashmir. It was the only Indian private sector bank to have won this award as the lead arranger out of a total of 367 deals presented across thirty countries
2008
April: YES Bank appoints Radha Singh and Ajay Vohra as independent director(s) on the board of Yes Bank, w.e.f. 29 April 2008.
May: The bank and PTC+, a premier Dutch practical training institution in the field of high-technology agriculture, announced an alliance to develop projects and encourage innovations in the agro sector and other initiatives in the field of agro infrastructure
August: YES Bank ties up with Cisco for voice-enabled phone banking
24 November: The UAE-based private bank, Mashreq, entered into an alliance with YES Bank to launch global Indian banking services across UAE
26 November: YES Bank chairman Ashok Kapur killed in the 26/11 terror attack
2009
SKS Microfinance signs a securitization deal worth Rs 100 crore with YES Bank. This deal allowed the bank to purchase 1,48,950 microloans extended to unbanked SC, ST and minorities’ families identified by the RBI as weaker sections. The transaction has been rated as ‘Very Strong Safety’ by CRISIL
The bank signs a loan agreement with development finance institution DEG, under which it will borrow a five-year loan of 20 million euros. The DEG (Deutsche Investitions-und Entwicklungsgesellschaft mbH) is one of Europe’s largest development finance institutions
YES BANK awarded the ‘Most Innovative Bank in India’ at the New Economy First Annual Banking and Finance Awards 2008 held in London and announced in the December 2008 issue of the New Economy. YES BANK is the only Indian bank to have won this award
2010
YES Bank joined hands with handset maker Nokia to offer mobile payment services that would enable consumers to pay for goods and services using their mobile devices.
YES Bank raises $225 million (Rs 1033.87 crore) through a qualified institutions placement
YES Bank commences operations in Assam
YES Bank takes off into the Next Generation Phase - and launches version 2.0
YES Bank receives Baa3 long-term international rating from Moody’s
2011
YES Bank enters into a strategic alliance with DHFL
YES Bank hikes saving deposit rate from 6 per cent to 7 per cent
YES Bank recognized as ‘India’s Fastest Growing Bank of the Year’ at the Bloomberg UTV Financial Leadership Awards 2011
YES Bank enters into a memorandum of understanding (MoU) with the Government of Gujarat
YES Bank awarded ISO 27001:2005 certification
2012
YES Bank launches ‘Auto Credit Service to boost its low-cost deposits and attract retail customers
YES Bank gets RBI nod for broking subsidiary
YES Bank awarded the Financial Insights Innovation Award at the Asian Financial Services Congress, Singapore
YES Bank establishes its presence in Thiruvananthapuram, Kerala
YES Bank launches India’s first social deposit account
2013
YES Bank joins the Indian Premier League (IPL) with a five-year sponsorship deal
CCEA approves YES Bank’s proposal to raise foreign holdings to 60 per cent
YES Bank tries appointing three top management executives as whole-time directors. Madhu Kapur, wife of Ashok Kapur, goes to court against it.
YES Bank forms alliance with Credit Ratings for small and medium enterprise (SME) segment services
YES Bank inks MoU with Austrade to explore agricultural business opportunities
2014
YES Bank receives ratings upgrade from ICRA Limited on its various debt programmes
YES Bank signs a MoU with The Energy and Resources Institute (TERI) to promote sustainable development in India
YES Bank mulls to expand retail business
YES Bank enters into home loan business
2015
YES Bank loses case against Madhu Kapur
YES Bank signs up with the Overseas Private Investment Corporation (OPIC), the US government’s development finance institution, and Wells Fargo to support small business growth
YES Bank launches India’s first Green Infrastructure Bond Issue of Rs 500 crore plus Greenshoe
YES Bank sets up a representative office in Abu Dhabi, UAE
YES Bank becomes the first Indian bank to be selected in Dow Tones Sustainability Indices
YES Bank and London Stock Exchange Group sign a MoU
YES Bank signs an agreement with OPIC
YES Bank signs loan agreements with OPIC and Wells Fargo to support small business growth in India
2016
YES Bank has acquisition of stake in the Institutional Investor Advisory Services (IiAS)
YES Bank’s FIIs/ RFPIs limit increased to 60 per cent from 49 per cent
YES Bank granted in-principle approval by SEBI for custodian of securities business
YES Bank receives Government of India and CCEA approval to increase foreign investment limit to 74 per cent
YES Bank receives in-principle approval from SEBI for setting up of mutual fund, asset management and trustee
YES Bank bags dual ISO certification for learning and development
YES Bank launches SIMsePAY-Industry First Innovation to empower all citizens to broad-base digital banking
YES Bank awarded ‘The Best Bank at National Level’ by State Forum of Bankers’ Clubs, Kerala.
2017
YES Bank partners with Gupshup to introduce artifical intelligence-powered chatbots for instant loan offering
YES Bank launches first-in-industry customizable savings account
YES Bank awarded for ‘API Banking’ innovation at FinTec India conference and awards
YES Bank and Andhra Pradesh Non-Resident Telugu Society (APNRTS) enter into strategic partnership
YES Bank becomes the first bank globally to migrate to the new ISO 14001:2015 certification
YES Bank adjudged ‘Best Technology Bank of the Year’ at Indian
YES Bank recognized as the ‘Best Social Bank’ (in the mid-sized bank category) during the ASSOCHAM 12th Annual Banking Summit-cum-Social Banking Excellence Awards
YES Bank partners with Paisabazaar.com
YES Bank certified by BSI for ERM framework
2018
RBI says no to extending tenure of Rana Kapoor as bank chief
YES Bank starts reconciliation with Madhu Kapur
2019
Rana Kapoor is forced to step down by RBI
Ravneet Gill takes over as YES Bank chief
Shagun Kapoor, daughter of Ashok Kapur, drafted on the board of the bank
YES Bank starts reporting massive losses; non-performing assets (NPAs) tumble out
YES Bank starts looking for funds
Rana Kapoor sells his entire stake at YES Bank
Run on the bank starts
2020
RBI places moratorium on YES Bank, executes bailout
ED arrests Rana Kapoor
YES Bank gets new board; promoter group dropped from shareholding pattern