Business & Finance

From Yes Bank To No Bank

Yes Bank CEO Rana Kapoor was known to be a reckless lender, who lent profusely as he sought to network in Mumbai’s top business circles.

 

India’s banking and financial sector, consisting of banks and NBFCs have been extremely crisis-ridden, as we witness rot in one large bank/NBFC after another. We saw the likes of Chanda Kochhar messing around with ICICI Bank until she finally exited and so was the case with Shikha Sharma and Axis Bank. It was this kind of criminal misuse of authority and funds and blatant mismanagement that led to huge frauds and collapses, which started with 14 bankrupt PSBs going into PCA, the fall of ILFS, bankruptcy of IDBI Bank, the expose of giant misconduct at Yes Bank and the exit of Rana Kapoor, the PMC Bank fraud, bankruptcy of Reliance Capital, DHFL, Altico and the shocking misuse of client funds at Karvy. More collapses of NBFCs and cooperative banks, in particular, are in the pipeline, with the giant portfolio of NPAs in the MSME sector and real estate, yet to be recognised by banks.

The sector’s unprecedented crisis, symbolised by the over Rs. 10 lakh crore of NPAs, which continue to rise, has been due to political meddling and interference, reckless lending, slow-moving IBC, and poor regulation and supervision by the RBI, with the complicity of all others, including the auditors, the independent auditors and the supervising bureaucrats. Apart from bringing the entire sector to a halt, there has been a huge waste of public money, with the government having infused over Rs. 3 lakh crores to recapitalise the bankrupt PSBs in the last three years alone.

If we think that this malaise of gross mismanagement infected only PSBs and cooperative banks, then one is grossly mistaken. ICICI Bank and Axis Bank may not have collapsed, but they witnessed shocking mismanagement and manipulation of financial statements, under the watch of their then CEOs Chanda Kochhar and Shikha Sharma, but the worst of a lot of private bankers, has been the case of Rana Kapoor and the bank promoted by him i.e. Yes Bank. It was set up in 2003, with Rana Kapoor being a 26% shareholder and Rabo Bank having a 20% shareholding. With aggressive fundraising tactics and wholesale lending aided by blatant regulatory failures and manipulation of books, it soon became the fourth largest private sector bank in India, with deposits of Rs. 2.09 lakh cr. and advances of Rs. 2.34 lakh cr. as at September 2019.

Rana Kapoor was known to be a reckless lender, who lent profusely as he sought to network in Mumbai’s top business circles. Thus Yes Bank has lent funds to questionable influential borrowers and their organisations, including ILFS, DHFL, Jet Airways, Essel Group and the Anil Ambani Group, throwing all prudence and caution to the winds. And to top it, Rana Kapoor had the former Finance Secretary Ashok Chawla, who faces CBI investigation in the INX Media case, appointed as the chairman of Yes Bank, who was a willing mute spectator to all his misdeeds, misconduct and malpractices. And in all this the RBI was clearly negligent in as much as despite being aware of the misdeeds of Rana Kapoor much early in the day, it was only in Sept. 2018 that the RBI had him sacked by refusing to extend his tenure as the CEO of the Bank. By then immense damage had already been done to Yes Bank, such that the likes of Moody’s and CARE have downgraded its credit rating further.

Yes Bank has now been facing severe liquidity problems, rising NPAs, shortage of capital, serious governance issues, and unabated losses, such that despite the continued effects of the new CEO Ravneet Gill, who replaced Rana Kapoor, no investor, whether domestic or foreign has been willing to invest in Yes Bank. The Bank is struggling to remain afloat with reported losses of Rs. 600 crores in the September quarter, loans of Rs. 30000 crores becoming doubtful and its December quarter results being postponed.

Also Read: Depositors Money Is Safe: FM Nirmala Sitharaman On Yes Bank Crisis

It is due to this serious deterioration in the financial position of the Bank, its failure to come up with a revival plan before the RBI, its failure to raise any capital and the most imperative need to protect depositor interests, that the RBI had no alternative but to put the bank under moratorium for 30 days.

With this the Board of the bank stands superseded, it cannot continue with its business of borrowing and lending and till the RBI does not come up with a revival plan within 30 days, it can incur no liability/payments, except for payment of salary, rent, taxes, legal expenses etc. A retired SBI CFO has been put in charge of the Bank and if reports go, the SBI board has already taken an in-principle decision to invest in Yes Bank.

The RBI’s move and assurances that the interests of the depositors will be fully protected means that there will be no panic in the system. But its shareholders have witnessed a huge erosion in wealth, with the share price of Yes Bank collapsing by 85% in a single day, before it recovered. The larger issues here are:-

 

  1. The RBI should have done in 2017, what it did yesterday.
  2. The banking/finance system is still rife with NPAs and losses and thus more such failures, particularly in the NBFC sector, are imminent.
  3. With a piecemeal approach to the sector-wide crisis, the government is still devoid of a larger strategy to remedy/revive the entire banking sector.
  4. The government is still not seized with the calamity.
  5. And if reports are correct, Rana Kapoor has already fled India. Why was no lookout notice issued for him?

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