Yes Bank: rapid growth, hidden bad loans and a rescue

Before the crisis. Yes Bank grew its loan book rapidly, with large exposure to corporate groups that later ran into trouble. RBI did not allow its founder and CEO, Rana Kapoor, to continue beyond January 2019, and RBI inspections found that the bank had under-reported its bad loans. In January 2020, an independent director resigned, citing concerns about governance.

The moratorium. On 5 March 2020, RBI placed Yes Bank under a moratorium. Depositors could withdraw only ₹50,000 each, RBI superseded the board, and Prashant Kumar, a former CFO of SBI, was appointed administrator.

The rescue. The government notified a reconstruction scheme on 13 March 2020. SBI agreed to invest ₹7,250 crore, keeping its stake within 49% and agreeing not to go below 26% for three years. Other banks also invested.

The AT1 write-off. On 14 March 2020, the administrator wrote down the bank's Additional Tier 1 (AT1) bonds, worth about ₹8,415 crore, to zero. Many of these bonds had been sold to individual investors. In January 2023, the Bombay High Court quashed the write-off, holding that the administrator had gone beyond the powers given by the final scheme. On 15 October 2026, the Supreme Court upheld the High Court's decision and dismissed the appeals. The bank's shares fell as much as 20% that day.

Other actions. The Enforcement Directorate arrested Rana Kapoor in March 2020 in a money laundering case. SEBI penalised the bank and former officials over the mis-selling of AT1 bonds. Criminal cases against Kapoor were still before the courts at the time of this review.

• Loan growth far above peers. Fast growth concentrated in stressed borrowers is a classic sign of rising credit risk.
• Regulator signals. RBI's refusal to extend the CEO's term and its findings of under-reported bad loans were public, and they came well before the moratorium.
• An independent director's resignation citing governance. This was a direct warning from inside the board.
• Complex instruments sold to retail investors. AT1 bonds can be written off under their terms. Selling them to individuals as safe, deposit-like products created a second crisis.

• Treat regulator actions as information. When RBI or SEBI acts against a company's top management, take it seriously.
• Read the terms of what you own. AT1 bonds rank close to equity. Their terms allow loss absorption, even though courts later found that this particular write-off went beyond the scheme's powers.
• Rescues protect some investors, not all. The 2020 scheme protected depositors and gave new investors a lock-in; AT1 holders and existing shareholders took the losses, and the AT1 outcome took six years of litigation to settle.
• Resignation letters matter. An independent director's stated reasons for leaving can be the clearest public warning.