1.0 EXECUTIVE SUMMARY
Yes Bank, established in 2004 as India’s 4th largest private sector bank, faced several challenges leading to a severe financial downturn. The Bank’s origin in 1999 involved critical figures from the banking sector: Ashok Kapur, Harkirat Singh, and Rana Kapoor. Over recent years, Yes Bank struggled to raise capital, resulting in credit downgrades, bond covenant invocations, and customer deposit withdrawals. Professional assessments reveal external factors like RBI deregulation impacting Yes Bank’s growth, internal strategies such as design thinking, diversified revenue generation, and aggressive lending contributing to mounting NPAs. The Bank faced restricted withdrawals, reduced activities, and diminished trust, ultimately leading to its takeover by the RBI in a reconstruction scheme, with the State Bank of India acquiring a stake. Aggressive lending, operational challenges, and delayed regulatory action contributed to the Bank’s downfall. Rooted in Kapoor’s leadership, a lack of governance reforms and insufficient risk assessment led to a systemic crisis. Recommendations include enhanced regulatory oversight, governance reforms, operational strategy overhaul, transparency, and ethical emphasis on employee training. A critical evaluation highlights Kapoor’s charismatic, transformational, and autocratic leadership styles, showcasing positive and detrimental impacts. A what-if analysis suggests alternative leadership approaches and best practices, emphasizing collaborative decision-making, robust risk management, transparent governance, and ethical cultures. Future action points involve regulatory oversight, separation of ownership and control, random audits, independent business model studies, and diversified banking relationships to prevent similar crises and foster a resilient financial system.
The Origin of Yes Bank was started in 1999 after three well-known Indian bankers joined forces to establish a non-banking enterprise. The trio comprised the national head Ashok Kapur, formerly the national head at ABN Amro Bank; Harkirat Singh, the country head at Deutsche Bank; and Rana Kapoor, the leader of ANZ Grindlays Bank (Dutta, 2020). At that time, Rabobank held the remaining 75% of shares in this non-banking venture, with each of the three Indian promoters owning a 25% stake.
In 2003, the institution underwent a rebranding as Yes Bank. Interestingly, that year saw Harkirat Singh’s resignation, citing complaints over the perceived influence exerted by Rabobank in the selection process for CEO and position of the executive chairman. Yes Bank has faced challenges raising capital in recent years, causing a continuous decline in its financial health (Vasudev, 2020). This predicament has triggered potential loan losses, resulting in credit rating downgrades. Consequently, Sarkar (2020) stated in his research that investors invoked bond covenants, and customers withdrew their deposits while the Bank continued to incur substantial losses in the last four quarters with minimal income. In response to these difficulties, Rana Kapoor was dismissed from his position and faced legal consequences through arrest in connection with a money laundering case involving INR 466 crores. This paper will look at the Yes Bank as the case study for analysis.
3.0 PROFESSIONAL ASSESSMENT OF YES BANK
YES, the Bank was set up in 2004 in India and, as of 2017, was the fourth largest private sector bank in India. It was set up by Rana Kapoor and two other like-minded individuals. The first branch was opened in 2004 in Mumbai and a year later hit the capital markets with an IPO of over Rs300 (approximately USD 50 million)
3.1 External Factors in the Growth Phase
RBI Deregulated the Savings deposit rate at the Bank. The Reserve Bank of India (RBI) 2011 deregulated India’s savings deposit interest rates. This means that the banks could now offer higher interest rates to their customers for depositing their money with them and did not have to adhere to a fixed percentage. Since this led to higher costs for all banks, the bigger banks were negatively affected, and newer banks, including YES Bank, were free to offer higher interest rates to attract deposits. Shares in the YES Bank after this move increased, and they were now more competitive with the bigger banks for market share; they were the first Bank to raise their savings deposit rates by 200 basis points to 6 percent for all savings accounts. (Pandey & Paul, 2011). This is another strong reason why the change in the external environment helped YES Banks, and it steadily accelerated its growth
3.2. Internal Factors
Design Thinking: One internal approach the YES bank leadership took was the Design Thinking strategy. Here, the leadership restructures its operations and products based on the community’s needs or the presented opportunities that need to be more utilized. The main objective was to build a company that could adapt to the times and look for new ways to compete in the marketplace. Using this strategy, the YES bank was able to be innovative and have an edge over its competitors. As part of this strategy, the YES bank put the people first before the technology, and this fostered an environment of employee creativity, open-mindedness, and passionate employees who were guided by a leadership willing to take risks. (Global Innovation, 2017) The new technology and the changing times were challenging for some banks. However, for YES Bank, this period of opportunity was when the company focused on innovation and entrepreneurship. The Bank realized an opportunity in the field of specialization of products. It started several new initiatives like the “YES HeaHead Startuphich, ” a full-service banking proposition that was tot to the industry. Innovations like this kept the Bank ahead of its competitors.
Diversified Revenue Generation. The growth strategy of YES Bank included diversifying its portfolio through a focused customer relationship management approach. The Bank invested heavily in digital platforms to further develop its retail liabilities business. The YES Bank received RBI approval to open two international offices to expand their services abroad to Non-Resident Indians (NRI). The YES Bank focused on developing its retail liabilities business as part of its corporate strategy. It incorporates Securities (India) to provide brokerage, investment banking, and other services via digital platforms. (Retail Research, 2020)
Aggressive Lending. As part of its growth, between 2014 and 2019, the management at YES Bank increased its lending heavily to corporates as part of business growth. The Bank went on a loaning spree. This led to an increase in loan repayment defaults, and the Non-Performing Assets (NPA) of YES Bank increased more than those of its peers. In September 2019, the NPA for YES Bank was at 7.39 %, which was the highest among the corporate banks. (Nickeled and Dimed (2020). This led to the loan-to-capital ratio increasing, which means that the Bank was lending out more money than it received as deposit savings, lending to businesses struggling with their businesses. When the issues at the YES Bank came to light, the public rushed to take out their deposits, which led to the above.
3.3 Situational Analysis
Bad Loan to Distress Companies. Bad loans are loans given to companies that are in distress and need help paying back the loan. These loans are normal in the business of banking and usually rise in times of economic downturn. The results of the bad loans are usually measured in the form of the Bank’s NPA (Non-Performing Assets), and the higher this value, the riskier it is for the Bank. NPA results when a borrower has missed the payment past the ninety-day mark, and its loan is now deemed a bad loan. In the case of YES Bank, they were giving out loans without going the standard industry way. These troubled companies had difficulty getting a loan elsewhere, and Mr. Kapoor charged them high interest rates and secured collateral against the loan. Things were okay when the economy was good, but over the next few years and a turn in the economy, all these turned up as bad loans.
Personal Favors: In other cases, the leadership gave loans to promoters from Shady in return for favors. One such example is the loan by YES Bank to the Wadhawan, where two separate loans were provided for Rs 4450 crore, and the Wadhawan paid back Rs 600 Crore to his family and Kapoor himself. (Unnikrishnan 2020). This later led to the arrest of Mr. Rana Kapoor for a criminal conspiracy of money laundering. By not following the industry practices and engaging in corruption, the Bad loans led to the seriousness of the crisis at the YES Bank, eventually leading to its takeover by the RBI and making it unstable.
Lack of Government Oversight The main objective of the RBI or the Government of India about the banks is to safeguard depositors’ money. The failure of YES Bank occurred because of a lack of government oversight or intervention. Global financial services giant UBS noted in 2015 that the reason for YES Bank’s rapid expansion is that it is beginning to lend money to financially troubled businesses. In 2017, the RBI started noticing the rising number of NPAs in the YES Bank and started monitoring it. In the case of The YES Bank, the RBI kept telling the Bank to correct itself rather than take over despite knowing there were issues with the YES Bank. The corporate governance of the Bank could have been better. It was only in 2017 that the Reserve Bank of India (RBI) found that the YES Bank needed to disclose an accurate picture of its assets. (Vasudev, 2020). The RBI appointed Prashant Kumar as an administrator of YES Bank, and the RBI took over overall bank management.
False Reporting of NPAs. The YES Bank shocked the community as the Bank disclosed a staggering significant difference between the Bank’s audited accounts and those found by the RBI regarding bad loans on the books as of March 31, 2016 (Hazari, 2017); upon this news emerging, there was a loss to the shareholders and a more significant loss of credibility to the senior management and auditor of the Bank. In September 2018, the RBI ordered Rana Kapoor to leave the CEO role and save the Bank, and as of January 2019, he ceased to be the CEO of YES Bank.
Losing Market Share. During the rapid growth of the YES Bank, its stock price reached new heights. The stock price once surpassed Rs 1,400, but as the NPA began to increase, its stock price fell, and as of March 2020, it was at Rs 36 per share. (Adhikari, 2020). The increasing NPA led to reduced profits and a sinking return on the capital. The poor returns on assets and profitability reduced stakeholders’ and potential investors’ visualization of the Bank, which all added to the reduction. In April 2019, the YES Bank recorded its first quarterly loss, and the next day, the business’s stock price fell by 30%. Rana Kapoor sold all his stock shares in YES Bank in November 2019, contrary to his previous claim that the stock was like a diamond and that he would never sell it. This caused further declines in the company’s stock price and confirmed for the investors that things would be getting worse.
Limited Bank Withdrawals. In the efforts to save the YES Bank, regular customers temporarily could not make regular withdrawals of more than Rs 50,000 a day because of a moratorium placed upon the YES Bank by the Indian Reserve Bank. This was because of the RBI’s “scheme of reconstruction,” and the Indian State Bank acquired a 49 % stake in the YES Bank. This will impact customers dealing with YES Bank for all their banking needs, especially if their salary is linked to YES Bank. The moratorium was set up by RBI temporarily from March 03, 2020, till April 03, 2020
Reduced Bank Activities and Investments. The possibility of granting customer loans or deposits would be reduced due to reduced customer trust. Many small businesses depended solely on YES Bank for all their banking needs. 35% of the UPI transactions took place through the YES Bank. This will lead to many people and businesses directly or indirectly being affected by the restrictions of the YES Bank
4.0 IDENTIFICATION OF ISSUES AND RECOMMENDATIONS
4.1. Key Issues in Yes Bank’s Governance Crisis:
An analysis of the crisis’s critical aspects, focusing on leadership failures, risk management inadequacies, and regulatory lapses, reveals significant errors in understanding its collapse. Key pieces include:
Aggressive Lending Practices: Under Kapoor’s leadership, YES Bank engaged in aggressive lending, which, according to India Today journalist Prabhash K Dutta, included giving loans to struggling companies, many of which subsequently collapsed and had to be passed by the Indian government for restructuring. (Dutta, 2020).
Failures in Risk Management: YES Bank’s risk management needed to have been more adequate in assessing and mitigating the risks associated with its aggressive lending strategy, exposing it to troubled sectors like real estate and infrastructure, contributing to its financial instability. (Akhtar et al, 2021)
Delayed Regulatory Action: In 2018, Rana Kapoor was requested to resign by the RBI without putting the Bank under the Prompt Corrective Action framework, instead opting for a moratorium due to the institution’s persistent underperformance. As a result, inadequate credit assessment and monitoring processes and failed to adequately identify or mitigate risks (Deccan Herald, 2020)
Operational Challenges: YES Bank’s rapid expansion and diversification efforts, including a shift towards retail banking, needed to be adequately supported by a robust operational framework. In addition, mismanagement and alleged irregularities in operations further exacerbated the crisis. (Akhtar et al, 2021)
Leadership & Governance Issues: According to a 2021 study published in the Emerging Economies Cases Journal), Rana Kapoor’s autocratic leadership style played a significant role in the governance issues that plagued Yes Bank by not only contributing to risky business decisions but also by creating an unstable governance environment, undermining the Bank’s performance and reputation. (Akhtar et al, 2021)
4.2. Root Cause Analysis:
“The year was 2004, India’s economy was booming, and ‘India Shining’ seemed like a true slogan. Around the same time, a non-banking financial company applied for and received a license to operate as a private bank. Yes, Bank was born.” (Roxy Library, n.d.).
Root cause analysis (or RCA) is the quality management process by which an organization searches for the root of a problem, issue, or incident after it occurs. (IBM, n.d.) As explored in section 4.1, the collapse of Yes Bank can be attributed to a combination of factors such as governance, operational strategies, and regulatory oversight – the overarching categorization of which can be found in the word ‘leadership.’ As such, to analyze the root causes of YES Banks’ demise is to analyze Rana Kapoor. Yes Bank, journalist Prabhash K Dutta writes, was founded by three partners – Harkrit Singh, former country head of Deutsche Bank in India, Ashok Kapur, former country head of ABN Amro in India, and Rana Kapoor, former corporate banking head of ANZ Grindlays. (Dutta, 2020). However, Singh was out of the picture when the Bank was up and running. and shortly after that, the death of co-founder Ashok Kapur occurred., This left Kapoor as the critical driving force behind Yes Bank. His solo leadership style – aggressive and high-risk – then became increasingly pivotal in shaping the Bank’s strategies and operations. This, combined with significant governance lapses and regulatory actions, led to the Bank’s eventual crisis. Not even the later transition to new leadership, Dutta concludes, could immediately rectify the deep-rooted issues, pointing to systemic problems established during Kapoor’s tenure.
4.3. Recommendations and Justifications:
When exploring the identification of issues, journalist K.T. Jagannathan agrees that there is no doubt that Rana Kapoor is very much culpable for the crisis at YES Bank. Nevertheless, he continues, it is not enough to blame him, adding, “Banks are among the most highly regulated entities in this country, where regulation is often not taken seriously. With that being the case, what were supervisory organizations doing to spot wrongdoings early on? Just like in most Indian films, where cops arrive on the scene after everything has happened, regulators and supervisory agencies wake up way too late” (Jagannathan, 2020)
As such, to delve deeper into preventing a recurrence of a crisis like Yes Bank’s, the following recommendations were identified:
Improved Regulatory Oversight: RBI had put aside considerable time to explore the weaknesses in the Yes Bank management. YES Bank, however, refuted these claims by acknowledging that the Bank was in danger of failing. This fueled the need for more stringent regulations, prompt action, and improved regulator control over supervision. (Akhtar, 2021)
Governance Reforms: Introducing checks and balances to avoid power concentration in the hands of a single individual, implementing a more democratic decision-making process, and ensuring that the board of directors has more autonomy and authority can prevent leadership issues like those under Rana Kapoor’s tenure.
Operational Strategy Overhaul: What happened necessitated a difference of ownership and control at the primary level to evade conflict and ensure banks have the operational capacity and infrastructure to support such extraordinary growth. (Akhtar, 2021)
Transparency and Accountability: Trust plays a vital part in every organization’s performance, substantially reducing the chance of conflict. The same holds for the banking business and necessitates openness and regulation to defend stakeholder’s interests (Akhtar, 2021)
Employee Training and Ethics: Focus on continuous training of employees, particularly in ethics and compliance, that requires the participation of an institution’s senior leadership, board memberships, and chief executives is critical in creating an organizational culture that prioritizes ethical practices and regulatory compliance, which is crucial in the banking sector. (Ethico, 2023)
By implementing these recommendations, banks can safeguard against similar crises and contribute to the financial system’s overall stability and integrity.
5.0. AN ANALYSIS OF THE GOVERNANCE CRISIS IN YES BANK
5.1. Leadership Styles in Yes Bank
The Yes Bank case study revealed numerous leadership styles the Bank’s founder and CEO, Rana Kapoor, displayed. An analysis of the case study provided a plethora of leadership concepts and methods that were employed. “Charismatic management or leadership is a form of professional guidance or management built on strong communication skills, persuasiveness, and maybe even a little charm to help them get the most out of everyone that works for them” (2021). Rana Kapoor displayed strong convictions in his impressive vision and naturally inspired shareholders and employees to evoke similar emotions and devotion to his shared vision. These forward-thinking leaders effectively and persuasively motivate and encourage their teams by passionately detailing company goals and objectives. Charismatic leaders are described as having a clear vision for future goals and developing a distinct path to achieve these goals. To attain these objectives, they are open to taking calculated risks and exploring various methods to capture profitable gains. Charismatic leaders may only sometimes be the most innovative members of the organization, but they are skilled at coaxing the innate creativity of their followers. This determination takes precedence during high-stress or challenging situations where team motivation may ebb and encouragement is necessary.
Charismatic leadership offered many advantages to Yes Bank. As a leader, Rana Kapoor was viewed as a catalyst for industry change and successfully inspired people to work together for a common purpose. Yes Bank’s CEO effectively communicated his vision to motivate his followers. Employees with a clear purpose led to greater cohesion and enthusiasm within the organization. This cohesion promoted a commitment toward a central goal, increasing employee and stakeholder engagement levels. Kapoor’s charismatic personality positively impacted the Bank’s brand and solidified its position as a leader within the banking industry. Stakeholders were satisfied that Yes Bank’s reputation was one of strength in a volatile and competitive financial market. A genuinely charismatic leader, however, learns from their mistakes to prioritize achieving the central goal; this was different with Kapoor and Yes Bank.
The charismatic leadership style has its challenges. Leaders who once seemed inspirational could develop arrogance and stubbornness. As their organization becomes more dependent on them, these leaders “may believe they are above the law, committing financial or ethical violations” (Stu, 2014). The case shows that “Kapoor’s leadership style raised concerns after it was revealed that Yes Bank reported lower non-performing assets.”. Kapoor reportedly abused his influential power to silence the Bank’s board of directors from speaking out against his misconduct and questionable decisions. His arrogance as a charismatic leader obstructed him from learning from or acknowledging these mistakes, leaving him with no option but to repeat and compound them in exchange for short-term financial success. These actions damaged Yes Bank’s reputation irreparably, while his unethical behavior eroded the relationship between the company and its key stakeholders.
5.2. Leadership Methods
“To be considered a transformational leader, one must go beyond their immediate self-interests to work with teams or followers to identify the needed changes” (Davis, 2022). With empathy and inspiration, transformational leaders employ techniques to captivate their audience and set an example that others are influenced to follow. Some key elements of transformational leadership include inspirational motivation, individualized consideration, intellectual stimulation, and idealized influence. As a transformational leader, Kapoor empowered and motivated his followers to excel in their abilities and perform extraordinary tasks for the sake of the organization. This was evidenced by his driving a culture that emphasized risk tolerance and the importance of short-term gains regardless of the possible negative impacts.
Kapoor’s tenure as CEO of Yes Bank was plagued by unwarranted risk-taking initiatives to achieve temporary (short-term) gains. This is most notably observed by his unconventional lending criteria that boldly prioritized immediate, though temporary, financial gains and market growth before all else. Under his leadership, loan agreements were extended to non-banking financial companies (NBFCs) and other high-risk sectors to gain the most profitable returns within the shortest time frame. A key characteristic of transformational leadership is its promotion of risk management, which, in this instance, was done to the detriment of the Bank’s long-term sustainability. Especially within the banking sector, “the role of leaders” is to “move the organization toward the future, recognize the need for changes in the environment, and help make them happen becomes more clear” (Davis, 2022).
Some companies require more rigidity in their business processes and structures. Ch charismatic and transformational leaders would only fit these roles or be effective. When an organization implements an authoritarian leadership style, the leader of the organization has complete control over all aspects of the decision-making process. “Authoritarian leadership refers to any situation where a leader retains as much power and authority as possible” (Oxford, 2020). When the board of Yes Bank hired consultants to identify Kapoor’s replacement, “Kapoor had a discussion with Ms. Madhu Kapur to pool up the individual promoter stakes that would allow him or one of his affiliates to continue as a member of the board, even after he demits the office.” Despite his imminent replacement, Kapoor was determined to retain control and even resorted to manipulative behaviors and tactics.
Under an authoritarian regime, the leader’s viewpoints take precedence, and all the decision-making authority remains with the dictator/leader. This leadership style usually leads to an abuse of power by the leader as they rely on little to no input from their followers. In fact, “several studies have shown that authoritarian leaders tend to be emotionally detached and are often unable to empathize with others” (Oxford, 2020).
Kapoor often made decisions without seeking, which went against the consensus of his team, industry experts, and even the board of directors. Characteristic of this leadership style, Kapoor remained resistant to collaboration and needed to heed the varied viewpoints available to him from numerous stakeholders. Yes Bank’s CEO remained resistant to change, and his tendency to micromanage his team negatively impacted the organization’s effectiveness. Stifling his team’s decision-making and operational capacity resulted in the Bank’s inability to respond to the changes in the dynamic financial system.
Kapoor’s actions relayed a complete disregard for the needs of the Bank. His lack of foresight and miscalculation in extending loan facilities to precarious organizations that inevitably evaded repayment highlighted his inability to pursue long-term financial success over his interest in immediate achievement. Kapoor’s focus on his personal goals was met at the expense of the organization’s future, giving rise to possible conflicts of interest, transparency concerns, and ethical violations.
6.0 CRITICAL EVALUATION
6.1. Appropriateness of Leadership Approach
The Yes Bank case study analysis reveals many leadership styles, primarily by the company’s CEO and founder, Rana Kapoor. Kapoor’s charismatic qualities motivated employees and other stakeholders to aspire to achieve company objectives. He clearly articulated his desire to build Yes Bank into the most impressive Bank in India and quite successfully developed the Bank’s brand based on this platform. His leadership traits allowed him to influence and inspire his followers to innovate and perform on his behalf. Within his role as a leader, however, Kapoor used his charisma to gain the support of his team in accomplishing his specific objectives. Board members and industry experts were manipulated into championing his ideas, all of which led to the eventual and premature downfall of the once-profitable organization. From this, we can determine that this leadership style has distinct positive and negative effects. Charismatic leaders can motivate and inspire their teams and stakeholders to achieve clearly stated company objectives. Conversely, a leader can also use his influence to guide the organization down a destructive path with little to no accountability. Unfortunately for Yes Bank, this was the direction taken by its founder.
6.2. Critical Analysis of Applied Leadership
The development strategy for Yes Bank was aggressive and multifaceted. Kapoor successfully applied his transformational leadership style to attain his extraordinary company vision. He nurtured a culture of innovation and motivated his team to implement financial strategies such as competitive balance sheet budgets and achieving organizational growth goals for additional branches. Kapoor’s transformational leadership skills allowed him to adjust his strategic agenda, when applicable, to effectively lead his team through various transition periods to achieve and maintain his extensive organizational goals.
Autocratic leadership was the least effective throughout the Yes Bank financial crisis. While the founder of Yes Bank preferred to remain the sole decision-maker for the company, it soon became evident that his decisions were not sound and would lead the financial institution to a certain ruin. Against the advice of industry experts, Kapoor sought investment agreements with risky institutions and was met with imminent failure. After stifling the influence and power of every other stakeholder, Kapoor’s organization now sought assistance from the Reserve Bank of India (RBI). It is essential for a leader to remain focused on the organization’s goals and always put the company’s needs before their own. In times of crisis, leaders should also have a support team and contingency plans to mitigate potential risks
7.0: WHAT IF ANALYSIS
A what-if analysis assesses potential outcomes by examining various scenarios, considering both positive and negative conditions to understand their impact on results. The fundamental goal of a what-if analysis is to offer valuable insights that contribute to more informed and strategic business decision-making (Momin, 2022)
7.1 Alternative Leadership Approaches
Had Yes Bank adopted a more collaborative and democratic leadership approach, the outcome could have been significantly different. A hypothetical alternative approach involves a more decision-making process that is inclusive. An inclusive and diverse workforce represents a significant opportunity to enhance decisions and, thus, business performance. Therefore, it is a strategic imperative that decision-making is more broadly delegated to include a more comprehensive set of employee perspectives. (Dobosz, 2023). For instance, if Rana Kapoor had fostered a culture of shared leadership, the Bank might have been more cautious in its lending practices, opting for a diversified and balanced portfolio that included safer, lower-yield investments alongside the higher-risk loans. This approach could have reduced the Bank’s exposure to high-risk sectors and prevented the accumulation of non-performing assets that ultimately led to the crisis.
7.2 Best Practice Hypotheticals
Analyzing best practices from other successful banks, Yes Bank could have adopted several strategies to ensure sustainable growth and risk management. For example, it adopts a risk management framework similar to that of JP Morgan Chase, where “risks are assessed and managed at both the micro and macro levels” (J.P. et al.). This could have provided a more comprehensive understanding of the risks involved in Yes Bank’s aggressive lending strategy. Another best practice alternative involves mirroring the governance model of Wells Fargo, which includes “a system of checks and balances with a clear separation of roles between the CEO and the board of directors” (U.S. Securities and Exchange Commission, 2023). This could have prevented the concentration of power in the hands of a single individual and ensured more effective oversight and accountability.
Adopting a transparent and ethical corporate culture similar to that of HSBC could have mitigated the risk of corrupt practices and ensured compliance with regulatory standards. This would involve implementing strict ethical guidelines and creating a psychologically safe environment where employees can report unethical behavior without fear of reprisal. (HSBC, n.d.).
8.0 FUTURE ACTION POINTS
Management of the Bank: The board of directors or shareholders must ensure that the senior leadership team has powers that can be controlled. This is because the senior leader does not wield so much power over the followers that subordinates feel obligated or forced to do things against their will. If this is not controlled, another charismatic leader can repeat what happened at the YES Bank. Another leader may again use their power, influence, and influence tactics to control followers to achieve unethical and corrupt outcomes. A leader may use his / her legitimate and coercive power to influence others if their powers are not controlled (Hughes, 2022). This can be solved by having a member of RBI on the board of directors so that the movement knows everything is occurring by the books. If the Bank faces any issues, at least RBI would know right at the onset rather than playing catch up or trying to fix the damage already done. This could happen to all central banks, so they have a government-appointed person on the board of directors so that they are all well-managed and following the law. The regulators require an effective and efficient system of control for all banks.
Separation of Ownership and Control: The ownership of the Bank should be kept at arm’s length and not involved in the direct day-to-day administration of the Bank at the primary level. In our case study, the bank owner was directly involved in all major decision-making and thus could manipulate processes and paperwork, and the board of directors did not do much about it. The CEO or the chairperson of the businesses should be appointed for a short time and changed to bring in new and fresh perspectives.
Random Audits or Mandatory Disclosure: The RBI can independently audit banks at random for the year prior to records without having any suspicion of wrongdoing. This is to verify that the proper procedure is followed and that no foreseeable risks exist with the entity. The banks are directed to report all the related and associated information with the functioning of the Bank, like their course of action, schemes, and other important information, to the RBI. There were breaches at several levels in this business case, including the management, board of directors, auditors, and regulators. Also, auditors were caught manipulating the books as the YES Bank was banned from operating and faced severe sanctions to discourage others.
Verify and Independently Study Business Models: Part of the government or regulator must study any business models that appear too aggressive or do not sound like a standard practice in the field by other similar businesses. The benefit is that if the regulator independently examined the aggressive business investing and loan approval concepts, they would have realized that this was not feasible, and rather than the Bank implementing it, the business model and concepts need to go back to the drawing board for further clarification. In the case of The YES Bank, despite knowing there were issues with the YES Bank, the RBI saw it as an issue in the long run as it was now lending money to risky businesses.
Businesses to Not Fully Depend on One Bank: From our case study, we learned that several other businesses depended on the YES Bank for all their banking needs, and when the YES Bank ran into issues, these businesses were crippled and were greatly affected financially. Their day-to-day operations halted, as well as their d continued operations, as they cannot pay their employees, expenses, and creditors. Having multiple banks would help small businesses with cash flow management, and the day-to-day operations are not ruined when one of the multiple banks ceases to operate or runs into any other trouble. The other benefit is that you would have better trust and creditability with your stakeholders.
In conclusion, had Yes Bank incorporated a varied leadership approach and followed the best practices of successful global banks, it might have avoided the governance crisis that led to its downfall. These scenarios suggest that a more balanced, risk-aware, and ethical approach to leadership and governance could have significantly altered the Bank’s destiny. Addressing the identified issues and implementing recommended measures is imperative to prevent a recurrence of Yes Bank’s crisis through enhancement of regulatory oversight, governance reforms, operational strategy adjustments, transparency, accountability, and ethical leadership practices. This will help ensure long-term stability and integrity in the financial sector. The what-if analysis explores alternative scenarios and best practices that could have averted the crisis at Yes Bank. This tool helps implement collaborative leadership, adopt risk management frameworks, enhance governance models, promote transparent and ethical cultures, and take future action points to contribute to a more resilient and sustainable banking system collectively.
In addition to these crucial steps, fostering a culture of continuous learning and adaptability within the organization would be paramount. Yes Bank could have benefitted from a proactive approach to stay abreast of evolving industry dynamics, emerging risks, and best practices. Continuous training, regular assessments, and a commitment to staying informed about the latest advancements in the financial sector could have empowered the Bank to navigate challenges more effectively. Financial institutions can position themselves to respond promptly to changing market conditions, regulatory requirements, and technological advancements, ultimately fortifying their resilience in the face of uncertainties by fostering a culture of learning and adaptability.
It is recommended for the Bank to enhance regulatory vigilance. Strengthen regulatory oversight through regular audits and independent assessments to promptly identify and address potential risks and irregularities within financial institutions. Secondly, there is a need for governance reforms. The Bank should introduce checks and balances in leadership structures to prevent concentration of power, fostering a more democratic decision-making process and ensuring that the board of directors has autonomy and authority. Thirdly, the Bank should devise an operational strategy review. This can be done by conducting a comprehensive review of operational strategies, emphasizing a diversified portfolio and risk management framework to mitigate exposure to high-risk sectors and ensure sustainable growth (Datta, 2020).
Fourthly, they are needed to form a transparent and Ethical Culture. Foster a transparent and ethical corporate culture, encouraging employees to report unethical behavior without fear of reprisal. This includes implementing strict ethical guidelines and creating a psychologically safe environment. Fifthly, they should implement Diversification of Banking Relationships. Encourage businesses to diversify their banking relationships to avoid over-dependence on a single institution, promoting better cash flow management and resilience in the face of potential disruptions in the banking sector.
Moreover, the Bank should contemplate the formation of an internal audit department focused explicitly on overseeing and evaluating risk management procedures. This autonomous unit would perform routine assessments of the Bank’s risk exposure, facilitating the swift mitigation of identified risks. Establishing a direct communication channel between the audit department and the board of directors would enhance oversight, adding an extra layer of scrutiny. Embracing this proactive stance towards risk management and a thorough internal auditing framework can markedly enhance the institution’s overall resilience and stability.
Finally, establishing a robust reporting mechanism that encourages employees to voice ethical concerns without fear of retaliation is essential. This promotes a culture of openness and accountability, allowing the Bank to address potential issues proactively. Additionally, periodic assessments of the effectiveness of these training programs can further refine and tailor the educational initiatives to evolving ethical challenges within the banking industry.
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