Yes Bank: A Tale of Corporate Plunder

The Yes Bank scam comes to public notice at a time when the Nirav Modi fraud is still fresh in our memory. Nirav Modi misappropriated big public money of several public sector banks and fled the country. Rana Kapoor, the founder of the private sector bank, Yes Bank, gave bad loans to big corporate houses and allegedly personally misappropriated big kickback money from the big corporate deals of the bank.

Yes Bank started its journey as a private bank in 2004 and successfully raised Rs 355 crores as share capital from the market in 2005. After the death of co-founder and Chairman of the bank, Ashok Kapur, in the 26/11 terror attacks in Mumbai in 2008, Rana Kapoor had a free hand in running the bank. Reportedly, Yes Bank had a balance-sheet size of Rs 22,900 crores and a loan book of Rs 12,403 crores by 2008-09. What is the financial health of the bank now? To put it in the words of India Today: “With an asset size of Rs 3 lakh crore, the hole in the bank’s balance-sheet is huge. The estimate of stressed loans is in excess of Rs 50,000 crore. The market capitalisation of the bank has come down to less than Rs. 5,000 crore. Deposits worth Rs 2 lakh crore are in danger of being wiped out”. (March 23, 2020)

The corporate giants who were involved in “big bad deals” of Yes Bank include Reliance ADAG Group, DHFL, HDIL and ESSEL Group. The amount of outstanding “stressed” loans in the loan book of Yes Bank associated with the above corporate giants are Rs 13,000 crore, Rs 3,700 crore, Rs 3,700 crore and Rs 3,300 crore, respectively. According to the Enforcement Directorate, overall kickback money amounting to Rs 5,000 crore went into shell companies owned by Rana Kapoor’s wife and his three daughters. (See India Today,ibid.)

The rising career of Rana Kapoor in the world of finance established him as an industry leader. In July 2013, he took over as the President of the Associated Chambers of Commerce and Industry (ASSOCHAM). He also cultivated right political connections. When the BJP Government came to power at the Centre in 2014, “Rana was quick to switch sides”. He congratulated the new Prime Minister, Narendra Modi, as the president of ASSOCHAM and criticised the previous regime. (India Today,ibid.)

The fact is that the present crisis of Yes Bank can be traced back to the beginning of the Narendra Modi regime. To put it in the words of The Indian Express (March 15, 2020): “One of the reasons for Yes Bank’s troubles was the massive increase in its loan book between 2014 and 2019. From total advances of Rs 55,633 crore in 2014, the number grew nearly five times to Rs 2,41,500 crore in 2019.”

On March 6, 2020, the RBI had announced Yes Bank Ltd Reconstruction Scheme, 2020. According to the scheme, the State Bank of India (SBI) will have to stay invested in Yes Bank for at least three years with a minimum stake of 26 per cent. On March 13, the Union Cabinet approved the reconstruction scheme of Yes Bank proposed by the RBI, with some modifications. (See The Telegraph, March 8 and 14, 2020)

According to latest reports, Yes Bank’s deposit base has declined by Rs 71,991 crores since September 2019 till date. The bank reported a huge loss of Rs 18,564 crores for the quarter ended December 2019, in the wake of a spurt in bad loans. (The Indian Express, March 16, 2020) The holders of Yes Bank’s Additional Tier-1 (AT-1) Bonds—amounting to Rs 8415 crore—will get no financial relief as the bonds will be written down in full and stand extinguished with immediate effect. This development may set the stage for a legal battle between the bond holders on one side, and the Centre and the RBI on the other. (See The Telegraph, March 16, 2020)

The way the giant public sector bank, SBI, has been financially integrated in the bailout policy for Yes Bank, formulated by the RBI and ratified by the Centre, raises serious questions in the public mind about the financial prudence of the RBI and financial policy of the Central Government.