A Year On, Ravneet Gill Struggles To Keep Yes Bank Afloat

After a few months of uncertainty, a search committee—appointed to pick the successor to ousted Yes Bank co-founder and chief executive Rana Kapoor—had settled on former Deutsche Bank India chief executive Ravneet Gill.

Gill seemed like just the antidote Yes Bank needed. A Deutsche Bank veteran, steeped in processes that Yes Bank may have lacked but foreign banks are so well known for. A person who displayed a quiet calm to counter Kapoor’s boisterous aggression. An insider to banking but an outsider to the many mistakes that Indian banks had made in recent years.

The market was thrilled. Yes Bank’s stock, then trading at Rs 197 apiece, jumped 20 percent on Jan. 24, 2019.

Then came March 1, 2019. Gill joined. Kapoor handed over. A meeting with senior leaders at the bank was held jointly to formalise the transition, according to people familiar with the matter. Gill appeared to have not just the blessing of investors but also of Kapoor, who left an impression that he would still be watching the bank’s affairs but from a distance.

And so began the Gill years at Yes Bank.

Yes Bank and Gill did not respond to a request for an interaction for this story. They did not reply to queries included in the email as well. The bank is currently in the silent period ahead of the earnings.

Coming Clean

Gill proved to be a lone worker right from the start. Not surprising. That was precisely the reputation he brought with him from his time at Deutsche Bank.

He would have meetings with senior staff. Listen to their views but say little in return. Conversations with Gill, according to at least two senior executives at the bank, are fairly one-sided. You present a proposal or an idea or weigh in on an issue. He listens. The eventual decision may or may not go along with what you suggested. You have no idea what his thinking is, they say.

The first big test for Gill was to be the earnings release for the fourth quarter of FY19. Having joined just about a month before the earnings, Gill was not likely to be held responsible for the numbers but he was keen to use the earnings release to come clean and make a show of transparency.

Some insiders advised against any knee-jerk attempt to clean-up or ‘kitchen-sink’, said a person familiar with the matter. The bank could send the message that it will continue to make attempts to recover loans, sell bad loans where possible, provision and de-emphasise growth for a few quarters, this person said.

But Gill, it seems, wanted to make a clean break.

The earnings revealed a net loss of Rs 1,507 crore for the fourth quarter. The gross non-performing assets ratio rose to 3.22 percent from 2.1 percent earlier. Gill also disclosed a Rs 10,000 crore ‘watch list’. This disclosure, which came even after the Reserve Bank of India’s asset quality review appeared to have left Yes Bank unscathed, unnerved investors and analysts.

The stock fell 30 percent on Apr. 30, 2019.

According to an analyst who tracks the stock, who spoke on condition of anonymity, the disclosure of a watch list confirmed fears that all was not well at the bank. That, even the RBI’s inspectors had not managed to catch the trouble that lay beneath the surface.

In subsequent meetings with individual investors, which were also run largely by Gill himself, more uncomfortable truths were revealed. Such as the bank’s portfolio of BBB and lower rated loans. Or that its exposure to just the stressed Anil Ambani group was as high as 50 percent of its common equity tier-1 capital.

The analyst quoted above, who met with Gill at those investor meetings, said that Gill’s inexperience in managing a public-listed company showed.

Against this backdrop, Gill continued to make efforts to raise capital, again, mostly choosing to run that process by himself as well. Even the townhalls he held to reassure employees (and he did hold a few) were focused mostly on capital raising. There was little on display, in terms of strategy or a roadmap, to motivate employees amid the continuing uncertainty.

Nervousness Sets In

Over this period, the stock remained volatile, reacting sharply to every news item that appeared.

The June 2019 quarter had brought with it another increase in bad loans to 5 percent and analysts slashed stock price targets. On July 17 2019, the Yes Bank stock fell below Rs 100 per share. It was only about a year ago that the stock had hit a peak of Rs 394 – on Aug. 20, 2018.

Investors had lost money. Employees had lost wealth held in the form of stock options.

Gill appeared to have decided on a sudden media blitz to shore up confidence. Except he failed to deliver on his words.

In September, Reuters quoted Gill as saying that the bank was in advanced investment talks with a global technology company. Officially, to stock exchanges, the bank termed the report as speculative. In October, he told Economic Times that private equity funds and family offices are in talk with the bank. “The quality of investors and ability to invest serous money into the bank is unquestionable with respect to each one of these,” Economic Times quoted him as saying. On Nov.4, he told CNBC-TV18 that the bank had received bids worth $3 billion.

As the capital raising program dragged out, Gill signed off on an announcement, which, from the outside, looks like a significant error of judgement.

In a release to stock exchanges on Nov. 29, the bank said that it had “taken note” of interest expressed by several investors and that it was pursuing a preferential allotment of up to $2 billion. Among those interested, it disclosed, was a $1.2 billion potential offer from a little-known and self-proclaimed Canadian billionaire Erwin Singh Braich. Another $500 million was on offer from a second little-known investor Citax Holdings.

It took journalists barely an hour of Googling to be able to tell these investors were neither marquee nor likely to get approval to purchase a large stake in a bank. The announcement cast a shadow on the process and the people that participated in it.

“We also have serious reservations regarding the quality of board of directors who are willing to consider these kinds of investors to be large shareholders, who don’t have the requisite experience,” said Suresh Ganapathy of Macquarie Research in a scathing note.

What was the bank thinking? What was the board thinking?

One version of the back-story to that decision emerged when a battle between the bank and a former board director Uttam Prakash Agarwal became public. Agarwal claimed the board advised against releasing the names of potential investors, but Gill went ahead nonetheless. But Agarwal himself was under a cloud as the bank said it was considering ending his term. It is possible that Agarwal was just hitting out at Gill. But he hit where it hurt.

Eventually, the bank discarded both the Braich and Citax offers. As the capital raising effort stalled, Gill’s command over the situation at the bank looked weaker than it had before.

Dealt A Tough Hand

Bankers and industry watchers say Gill was dealt a tough hand. No one argues with that.

Rana Kapoor’s obsession with growth in the last few years had led the bank to take excessive risks. Those who worked with him say that Kapoor believed he could manage the risk.

Gill was new to this aggressive style of banking. He wasn’t fully familiar with running a commercial bank of this size. Nor did he have experience in running a public-listed company that was under constant scrutiny. He also inherited a board with members loyal to the outgoing chief executive. And, a history with a regulator that had publicly censured the bank more than once, leaving investors nervous.

But that tough hand was made tougher by the errors Gill had made. Some believe the two together have pushed India’s sixth largest private sector bank to the edge.

The unavailability of capital “raises questions on the going-concern status of the bank,” said Nomura Global Markets Research in its note dated Dec.11, raising a question over Yes Bank’s independent future.

Yes Bank has now appointed merchant bankers to try and find new investors. Cantor Fitzgerald, whose president Anshu Jain was once Gill’s boss and mentor, is among them.

On Jan. 12, the bank said it has received non-binding expressions of interest from JC Flowers & Co. , Tilden Park Capital Management, OHA (U.K.) and Silver Point Capital. Given how low the bank’s stock price has fallen, any deal will need an exemption from the RBI on the stake that the investors are allowed to hold. It will also likely need exemption from the securities regulator on pricing thresholds.

The bank, in the meanwhile, cited its ongoing pre-occupation with fund raising as a reason to delay its quarterly earnings to March 14. Investors, analysts, regulators and the bank’s employee will be looking for many answers on that day.

Did bad loans rise further?

Did the bank see deposits flow out from nervousness around its future?

But mostly did the bank finally close at least part of its capital raising?

Ira Dugal is Editor - Banking, Finance & Economy at BloombergQuint.