There lies a clear difference between operating a family run business like the Ambani, Birla and Tata empires and a bank. The point of difference lies in accountability. In family run businesses, the patriarch or matriarch is the one that calls the shots and even though such a business may be a publicly listed one, various family members and relatives are usually on the board of directors (in addition to minimum number of independent directors of course) to ensure that no wishes of the lead promoter go wanting. Banks are a different ball game, unlike a family run business which does not have a limit on promoter shareholding, regulators have capped this limit to 20% promoter shareholding for banks, with a further guidance to reduce it to 15% in the near future. A stricter regime for the banking sector is due to the fact that public money in the form of deposits and current and saving accounts are in the possession of banks and a more transparent system of corporate governance and accountability is needed to preserve the public nature of their banking activities. These lines of accountability and corporate governance seemed to be blurred in the case of the country’s fifth largest private lender, Yes Bank. The bank seemed to be run in a very autocratic manner by its MD & CEO, Rana Kapoor and the latest debacle that the bank and its shareholders face are a result of no one questioning his authority when questions were warranted.
The journey of Yes bank began in 2003 when three middle aged professional entrepreneurs who had helped Netherlands based Rabo Bank set up shop in India, obtained a banking licence from RBI. Ashok Kapur, Harkirat Singh and Rana Kapoor who collectively owned 25% stake in Rabo Bank’s Indian operations sold their stake and set up Yes Bank with a capital of Rs 200 crores. While Kapoor and Kapur, who were also brothers-in-law, continued with the business, Singh quit soon after it began operations. A little known bank at the time, Yes Bank took small bets in the corporate lending segment in sectors like real estate, pharmaceuticals, renewable energy, electrical and media. Things seemed to be going well and Yes Bank hit capital markets with an IPO in 2005 and saw the value of its shares consistently rise, although by this time it was not in contention for being one of the big boys of banking battalion. Tragedy befell the Yes Bank family in 2008 when one of its founders Ashok Kapur was tragically gunned down during the horrific terror attack in Mumbai in November 2008 whilst at the Trident Hotel. Since then, the only founder remaining of the bank, Rana Kapoor took the reins and led the bank forward.
The banks first big break came in 2010 when RBI announced deregulation of savings account deposit rates. Sensing an opportunity, Yes Bank offered an attractive 7% rate of interest on savings deposits while other banks didn’t tweak theirs by much from the earlier 4%. Funds in the form of deposits poured into the coffers of the bank due to which Yes Bank did not require to look for alternate and often more expensive sources of funding. As a result deposits skyrocketed to Rs 73,176 crores in 2018 from a paltry 4,751 crores in 2011. At the same time an increased effort was being made to aggressively beef up its loan book as well. According to a Bloomberg Quint report, total advances as on march 2008 stood at Rs 9,340 crores, which rose to over Rs 2,00,000 crores as of march 2018.
Things began to take a turn for the worse when accusations began to surface from Madhu Kapur, wife of deceased former promoter and founder Ashok Kapur of alleged oppression and being completely side lined from the management and operations of Yes Bank even though her family was rightfully entitled to participate in important decisions. Shagun Kapur, daughter of Madhu Kapur, was not allowed to be nominated on the BOD of Yes Bank even though she was qualified to do so. Further, the name of Madhu Kapur was struk off from the list of major shareholders in an attempt to completely undermine the position of the Kapur family’s holding at Yes Bank. Finally with a court room drama playing out over this issue and both parties resorting to stern accusations and name calling against each other, the court in June of 2015 ruled in favour of Madhu Kapur allowing her daughter to receive a berth on the board of the bank. The bank hit a hurdle in 2015 when RBI conducted an asset quality review of banks to ensure that NPA’s were being correctly classified and reported as per its guidelines. On a scrutiny of Yes Bank’s accounts, many divergences were observed to the dissatisfaction of the regulator who accused the bank of improperly identifying and reporting bad loans and window dressing of accounts. As a result of this finding, the NPA ratio of the bank jumped and was not taken in positive light by the regulator or investors. Problems started to compound when the bank witnessed a failed Qualified Institutional Placement (QIP) of a billion $ under mysterious circumstances which also led to an investigation by SEBI.
Just recently, Yes Bank was in the news for all the wrong reasons. On Friday its shares tanked by 30% when RBI denied its promoter an extension of a three year term as was voted upon at the AGM by its shareholders, instead providing Rana Kapoor only three month extension until 31st Jan 2018 and instructed the lender to look for a replacement. The RBI in its official communication with the bank cited reasons such as “Weak compliance culture, weak governance and wrong asset qualification” as the reasons for its actions. The regulator has been coming down hard on the management of banks and perhaps Rana Kapoor is the latest example after Shikha Sharma of Axis Bank and Chanda Kocchar of ICICI Bank to be pulled up for questionable banking practices that only focus on loan book expansion without accounting for risks that may emerge in later years.
Government announces ₹48,239 crores recapitalisation plan for 12 PSBs
New Delhi | The finance ministry on Wednesday announced to pump in Rs 48,239 crore in 12 public sector banks in this fiscal to help them maintain regulatory capital requirements and finance growth plans.
Financial Services Secretary Rajiv Kumar said that the government will infuse Rs 9,086 crore in Corporation Bank and Rs 6,896 crore in Allahabad Bank — the two “better-performing” banks currently under the Prompt Corrective Action (PCA) supervision of the RBI.
Further, Rs 4,638 crore and Rs 205 crore will be provided to Bank of India and Bank of Maharashtra. These banks have recently come out of the regulatory supervisory framework PCA of the RBI.
Kumar further said Punjab National Bank will get Rs 5,908 crore, Union Bank of India Rs 4,112 crore, Andhra Bank Rs 3,256 crore and Syndicate Bank Rs 1,603 crore.
The government will pump in Rs 12,535 crore in four other banks under PCA — Central Bank of India, United Bank, UCO Bank and Indian Overseas Bank.
The government in December had infused Rs 28,615 crore into seven public sector banks (PSBs) through recapitalisation bonds.
₹ 28,000 crore lifeline for Government
An increasingly accommodative Reserve Bank of India (RBI) under its new Governor Shaktikanta Das will, after cutting benchmark interest rates to 6.25% earlier this month, transfer an additional ₹ 28,000 crore to the government as interim dividend, after a decision was taken in this regard after its central board met on Monday. This fresh infusion of money will help the government meet its revised fiscal deficit target of 3.4% of GDP for the year 2018-19 amid a short fall in revenue collection.
This is the second consecutive year that the RBI has transferred an interim dividend and this amount is in addition to the ₹ 40,000 crore already transferred.
What is interesting to note is that unlike the government which follows the April to March financial year, the RBI follows a June to July financial year. Therefore, the central bank usually closes its books of accounts in July and transfers surplus earned during the year in the form of dividend in August. Ideally, the RBI should wait for the entire year to conclude before declaring surplus in the form of dividends and this practice of declaring an interim dividend in the middle of the year is not a good one because the future income of the RBI, which is suppose to be for the whole year, is being prepaid, and in case of central banks, things can change suddenly at any point of time and they could be in need of such money.
Yes Bank Stop Misleading
All has not been good with Yes Bank and it continues to be not so. It was the refusal of the RBI to not renew the appointment of Rana Kapoor as the CEO of Yes Bank, leading to his ignominious exit, which confirmed our suspicions that all was not well with it. It was always known, though not publicly, that the first Asset Quality Review conducted by the RBI of Yes Bank in 2015, had reported severe accounting, regulatory and disclosure malpractices at Yes Bank, which included the manipulation of its financial statements, huge loans given in violation of its own lending policies and serious regulatory and corporate non compliance. In fact Yes Bank had no serious culture of regulatory compliance, indicating poor or no respect for the regulation and the regulator.
In other words the audited financial statements of the Bank were false, or at best a half truth. The primary issue was one of hiding its losses, and thus inflating its profits to the tune of thousands of crores. It under reported its bad loans to the tune of Rs.4176 crores in 2015-16 and Rs.8373 crores in 2016-17. The fact that Yes Bank blatantly manipulated its financial statements year after year, meant that either the RBI went soft on its CEO the leader of these shady practices, and thus did not sack him or that Rana Kapoor was supremely confident of managing and gaming the system, which explains why despite such a serious misconduct, for many years; he was not sacked by the RBI in 2015 itself.
A sternly warned and chastised Yes Bank, was however forced to come clean with its books of accounts in 2017-18. It was not because it had mended its ways, but with the dismissal of Rana Kapoor, it was forced to do so, after years of blatant violations and misconduct. In a recent filing with the stock exchanges, Yes Bank triumphantly announced that in its Risk Assessment Report for 2017-18, the RBI observed NIL discrepancies in the bank’s assets clarification income recognition and provisioning. Yes Bank thus implied that the RBI had given it a clean chit and that all is good now and that it has regained regulatory credibility. The market cheered the Yes Bank stock, its share prices went up by 32% in a single day and brokerages and analysts recommended it with a ‘buy’ rating. A stock that was hitherto viewed with suspicion and treated as junk, was overnight now being recommended for investment. Investors rejoiced that the balance sheet of Yes Bank was now squeaky clean and that notion arose due to the misleading letter of Yes Bank to the stock markets.
This misleading information by Yes Bank, did not go unnoticed. In a stern letter to Yes Bank, the RBI expressed its displeasure and warned that it will face stringent regulatory action for not just making a confidential report public, but that it also did not reveal the many lapses of Yes Bank and was thus a deliberate attempt to mislead the public. The said report had identified several lapses and regulatory breaches in various areas of the bank’s functioning, which it did not mention in its stock exchange filing. It also said that a nil divergence as tomtommed by Yes Bank is no achievement to be published, but only a compliance, which is a statutory duty of the Bank.
It is apparent from RBI’s sharp rap on the knuckles of Yes Bank, that it has given no clean chit to the bank and serious skeletons abound in its cupboard. The dubious conduct of Yes Bank in misleading the public, which started with its false financial statements continues.
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