How Yes Bank’s Rana Kapoor went from being an intern at Citibank to India’s newest billionaire

Rana Kapoor took a big risk when he founded Yes Bank in 2003.

At that time, India’s banking industry was years away from turning into the site of great entrepreneurial success stories and the country’s billionaire club was still the forte of those with family-owned businesses, usually conglomerates.

However, after a two-decade-long corporate career, Kapoor was determined to strike out on his own. Fourteen years on, that decision has paid off.

Yes Bank is today India’s fifth-largest private lender. On January 19, Bloomberg reported that Kapoor’s net worth crossed $1 billion, largely due to the surging value of his 11.6% stake in the bank. The company’s shares have jumped 20% over a one-month period (December 20 to January 20), making it the best-performing bank stock in Asia’s third-largest economy with some of the strongest returns on equity in the industry and low exposure to bad loans.

The Bloomberg Billionaire’s Index calculates a person’s net worth based on the number of shares he or she owns. Since stock prices are volatile, Kapoor’s will also change over time. He wasn’t available to comment for this story.

The 59-year-old is only the second billionaire from India’s banking industry, after Uday Kotak, the country’s wealthiest banker and the managing director of Kotak Mahindra Bank.

Kapoor’s come a long way from being a young boy with big dreams.

A grandfather’s dream

When he was young, Kapoor often told his grandfather that he had big plans for the future.

“As a child, I spent a lot of time with my grandfather, and would regularly tell him, ‘I want to get into business.’ It gave him hope,” Kapoor told the Business Today magazine in 2009. None of his grandfather’s four sons showed interest in their family’s jewellery trade, which was eventually sold off. The next generation belonged to professionals. Kapoor’s father was a pilot with the Indian Airlines, now Air India.

After graduating from Delhi University, where he studied economics, Kapoor went to the US for his MBA. While at New Jersey’s Rutgers University in 1979, he interned in the IT department of Citibank in New York. The glitz and glamour of banking in the big city inspired Kapoor to imagine building something similar in India.

But first, he had to acquire some experience. Following graduation, Kapoor began his career with the Bank of America in 1980, spending 15 years working across Asia, and eventually heading its wholesale business.

“I would constantly think about the work I was doing and how I could do it in my own set-up,” he told Business Today. While still at Bank of America, he, along with five colleagues, created a business plan for a non-banking finance company and presented it to the American Insurance Group. The idea fizzled out, though, and Kapoor continued in the corporate grind.

The professional entrepreneur

His next stint was a short one, from 1996 to 1998, at ANZ Grindlay’s investment bank where he was the general manager and country head for India. It was only after 1998 that Kapoor’s entrepreneurial journey began in earnest.

Kapoor started out as a professional entrepreneur, a person who builds a business for a corporation. He helped the Rabobank, a financial firm headquartered in the Netherlands, develop its India market. Along with colleagues Ashok Kapur and Harkirat Singh, Kapoor established Rabo India Finance under the build, operate, own, and transfer model.

At the time, the concept of a professional entrepreneur wasn’t common in India but the experience taught Kapoor some valuable lessons.

“This is an oft-used term now, but back then it was not common to read or discuss professional entrepreneurship. The concept of professional entrepreneurship struck the right chord and it helped build professional chemistry around this point,” Kapoor told the SmartCEO magazine in 2012.

Kapoor and his two partners owned 25% equity in Rabo India but the process of building up the firm wasn’t easy.

“This was just after the Asian currency crisis in 1997, and the timing for a financial services firm couldn’t have been worse,”Kapoor said in 2012. “No one knew Rabo Bank and we slogged to build an organisation in times of adversity.”

But their experience would pay off when it came to starting their own bank, which they decided to do in 2003.

The Yes ride

In 2003, the three partners sold their stakes in Rabo India and obtained a banking licence from the Reserve Bank of India. They set up Yes Bank with a capital of Rs 200 crore, with risk capital coming from the earnings of the Rabo stake sale, which gave each founder $10 million.

While Kapoor and Kapur, who were also brothers-in-law, continued with the business, Singh quit soon after it began operations.

Yes Bank opened its first branch in Mumbai in August 2004 and a year later hit the capital markets with an initial public offering that raised over Rs300 crore. At the time, it was mainly the public sector players that saw tremendous growth, besides a handful of private lenders such as HDFC Bank and ICICI Bank.

However, investors were ready to place their bets on the professionals running Yes Bank and that paid off over the years.

Today, Yes Bank has 964 branches across India and an asset base of Rs 1.94 lakh crore, as on December 31. The bank posted a 30% increase in profit on the back of an expansion in margins, according to its quarterly earnings report for October-December 2016.

But it certainly wasn’t a smooth ride.

Speed bumps

In its early days, creating a brand-name for Yes Bank in an industry that relies heavily on trust was tough.

“The main challenges are that we start as underdogs without institutional support and pre-established systems,” Kapoor told Forbes magazine in 2010. “In the beginning, we all lack the brand and have to really fend for ourselves.”

Then, in 2008, the bank’s leadership suffered a tragic setback. Kapur, the then chairman, fell victim to the 2008 Mumbai terrorist attack that took over 160 lives. At the time, he held a 12% stake in the bank.

In 2013, Kapur’s wife Madhu, who inherited the stake, dragged Yes Bank to court demanding equal voting rights to nominate a director on the company’s board. The two-year-long court battle took a nasty turn with some name calling, even as the courts ruled in Madhu’s favour. Kapoor’s niece, Shagun Gogia (Madhu’s daughter) said that “Rana uncle has made this a modern-day Mahabharat.”

Despite these hurdles, Yes Bank charged steadily towards success.

Good times

The secret to Yes Bank’s surging growth may be Kapoor’s unconventional decision making.

Firms that have done business with the bank SAID Kapoor looks beyond the numbers. For instance, when appliance maker Bajaj Electricals was looking to borrow money in 2007 for a debt-free firm it had acquired, there weren’t many banks willing to lend. Kapoor was different.

“Instead of just looking at the balance sheet and the rating of that company, Rana Kapoor looked at the parent company,” Shekhar Bajaj, managing director of Bajaj Electricals, told Knowledge at Wharton in 2012. “He charged me 2% to 3% higher interest, and made his extra money without really any additional risk because of the corporate guarantee that he got from us.”

However, compared to other firms, Yes Bank also has low exposure to bad loans. And that’s a big deal in India’s banking system saddled with over Rs 13 lakh crore of bad loans, according to some estimates.

Most lenders have recorded huge losses due to provisioning against these toxic assets. While the sector has a bad loan ratio of 9.1%, Yes Bank’s is a mere 0.85% even though around 69% of its total business comes from corporate borrowers. That might have something to do with its system that flags any risk to the borrowers’ repayment ability as soon as possible, forcing executives to act promptly.

Analysts are convinced that all this points to strong growth ahead. ICICI Securities said in a January 20 report, after the bank announced its results, that it will continue to grow across segments and that margins, too, will improve.

After all the struggle, the future looks bright. Kapoor wants to increase Yes Bank’s market share to 2.5% by 2020, from the current 1%. He wants to make it one of India’s top 5. These are ambitious goals, but India’s newest billionaire is certainly primed to achieve them.

This article first appeared on Quartz.