By Sneha Singh
Yes Bank Limited, a private sector bank with head office in Mumbai which was founded in 2004 by Rana Kapoor and his brother-in-law Ashok Kapur. It provides banking and financial products for corporate and retail customers through retail banking and asset management services. Yes Bank managing director and CEO, Rana Kapoor was charged for fraud under Prevention and Money Laundering Act.
Fraud Charges
The scam started to function during the month of April and June 2018 when Yes Bank invested Rs 3,700 crore in short-term debentures of the debt-laden Dewan Housing Finance Corporation Ltd (DHFL). In return, the Wadhawans paid a bribe of Rs 600 crore to Rana Kapoor and his family members in the way of loans to DoIT Urban Ventures.
The agency under inquiry finds another suspectable loan of Rs 750 crore granted by Yes Bank to a company operated by Kapil and Dheeraj Wadhawan.
Enforcement Directorate filed a charge sheet under anti-money laundering laws focusing mainly the Kapoor’s illegal indulgence amounting Rs 5,050 crore. In addition to inconsistency regarding distributing of bank loans to corporate entities, by misusing his official position, thus creating shell companies for laundering money, defaults, and creating tainted assets.
Except for Kapoor, ED also registers complaint against his wife Bindu, three daughters– Rakhee, Roshini, and Radha–and three firms namely Morgan Credits, RAB Enterprises (India), and Doit Urban Ventures controlled by them. On 5 March 2020 due to an excessive amount of bad loans, RBI had to control it from collapse.
RBI later reconstructed the board and appoint Prashant Kumar, former Chief financial officer of SBI, as new MD & CEO at Yes Bank.
Enforcement Directorate raided the global tours and travel company Cox & Kings Ltd in connection with Yes Bank Ltd. Cox and Kings were the top borrowers of the bank and the latter had made an advance of about Rs 2,260 crore to the company, the officials averred.
ED is investigating a number of other large corporate groups in relation to an alleged fraud case where huge loans issued by the bank which became Non-Performing Assets.
Criminal Conspiracy
Central Bureau of Investigation (CBI) filed a complaint against Yes Bank co-founder Rana Kapoor and 11 others at the Sessions Court in Mumbai. CBI had registered the case on March 7 for alleged cheating, fraud, criminal conspiracy in approving of loans by Yes bank, and in return taken huge rewards from Dewan Housing Finance Corporation Ltd (DHFL) promoter Dheeraj and Kapil Wadhawan.
The 100-plus page charge sheet also adds up DHFL, its promoters Wadhawans, DOiT Urban Ventures Ltd (DUVPL) which owned by Kapoor’s daughters, as accused in the scam.
Corporate Governance’s Fiasco
It is contended that it is a case of corporate governance failure from the side of corporate regulator SEBI & RBI. It is obvious that this could not have happened if bank promoters, senior bank management, auditors, borrowers, regulators from RBI, and key government officials made a strict vigil on his activity.
DHFL is a scam branded company that has been under investigation for over a year now, links with many other banks and institutions are in the news, still, its connection with Yes bank never surfaced.
One may wonders what was the need for the investigators to do so. It is only because its link with Yes bank is out in the open. Yes Bank was delineating a growth rate of about 30% for years continuously when the banking industry standard was only 10-12%.
This also not pointed some concern over detailed scrutiny by regulators. But nothing of this kind happened. It raises a big question on them. Indian corporate sector has thrown up a club of Bad Boys over the years who take huge advances from banks and then default it. The club includes many known defaulters like the ZEE Group, Essel Group, Reliance (ADG) Group, DHFL, India Bulls, UB Group, Geetanjali Diamonds, and JET Airways. Despite their defaults in repaying loans, the members of this club managed to grab fresh loans from other banks at will.
Yes Bank has welcomed every member of this club willingly to hand out loans with very little collaterals and scrutiny of their businesses. Chances are less to be trapped since the web is so complex that tracing becomes impossible.
Financial Crisis
The financial position of Yes Bank Ltd has been declining due to its inability to raise capital to address potential loan losses and triggering the invocation of a bond agreement by investors, and withdrawal of deposits. It also experienced low governance issues in recent years.
The Reserve Bank has been in persistent engagement with the bank’s administration to find ways to strengthen its balance sheet and liquidity. Central Government imposed a moratorium under section 45 of the Banking Regulation Act, 1949 after considering the facts of lack of a creditable revival plan, and public interest and the interest of the bank’s depositors.
The Reserve Bank convinces the depositors of the bank that their interest will be safeguarded. According to the provisions of the Banking Regulation Act, the Reserve Bank will structure a scheme for the bank’s reconstruction with the approval of the Central Government, put it in place before the period of the moratorium of thirty days ends so that the depositors are not put to hardship for a long period.
The Reserve Bank made guidelines to the bank under section 35A of the Act. Thousands of crores belonging to unsuspecting depositors have been looted. After RBI’s orders, Yes bank will be restricted to grant or renew any loan or advance, make any investment, incur any liability or agree to disburse any payment.
Reconstruction Scheme
The Reserve Bank of India has formulated a draft scheme for the reconstruction of Yes bank Ltd. The Reserve Bank accepting all suggestions and comments from the public, including the banks’ shareholders, depositors, and creditors on the draft scheme.
The draft scheme circulated to Yes bank Ltd and State bank of India for their comments. Sitharaman asserted that the State Bank of India (SBI) will invest 49 percent of the equity in Yes Bank, adding that other investors are also being welcomed.
The necessity for the capital requirement of Yes bank was raised from Rs 1,100 crore to Rs 6,200 crore. After lapsing of three days of the notification scheme the moratorium placed on Yes Bank will be lifted.
A new board will be comprised of at least two directors from SBI. The paragraph 5 (3) of the ‘Yes Bank Ltd Reconstruction Scheme 2020’ notified by Government of India on March 13, 2020, confers the power from subsection (1) of Section 36AB of the Banking Regulation Act, 1949 to appoint Shri R Gandhi (former Deputy Governor, Reserve Bank of India) and Shri Ananth Narayan Gopalakrishnan (Associate Professor, S P Jain Institute of Management and Research) as additional directors on the board of Yes Bank Limited for two years.
AT-1 bonds are termed as quasi-equity and issued to retail investors since terms and conditions of such bonds are complicated and unfavorable for them. The speed at which Yes bank issue has been resolved from lacking creditability is an exceptional achievement in Indian history.