The Banker Who Crushed His Diamonds

by Furquan Moharkan

  In fact, it is now being said that it was the RBI that got him to come back to India by saying that they would try making him the chairman of the bank. ‘Pyaar se laana pada usse (We had to get him back with love). It was a neat and clean operation by the RBI,’ two insiders who knew about this operation told me.

  On 13 February, Moneylife reported that most respected names in the financial world had proposed a public–private bailout of YES Bank as a last resort to RBI governor Das. Under this proposal, some of the leading banks, including ICICI Bank, HDFC Bank and, maybe, Kotak Bank, Axis Bank and others, would chip in Rs 2000 crore each, with a seat on the board and a commitment not to withdraw funds for at least two years. This solution also involved the SBI bringing in Rs 5000 crore on similar terms. A month later, call it indecisiveness or policy paralysis, an action based on similar lines was taken. If I, as an outsider to the system, knew way before the run on the bank (in September 2019) that it was unable to raise funds, it is beyond my comprehension that the regulator didn’t know.

  Had the RBI and the government acted at that time, the need to put a moratorium over deposits would have easily reduced. In September 2019, there was no run on the bank. The heavy withdrawals started only in October.

  A moratorium was placed on withdrawals from the bank on 5 March, when the RBI assumed control of the bank — a move seen as a bid to temporarily plug the run on the bank. But the RBI had acted after the bank had seen a further deposit-base erosion worth Rs 28,200 crore in the two months after it was alerted about serious solvency issues at the bank. On the day the RBI took control of the bank, a senior RBI official told me: ‘We can’t even wait till 14 March, when YES Bank would declare the results.’ The RBI’s action reminds me of a Kashmiri phrase ‘gryeki wizzi noon traawan’, which translates into ‘adding salt to the curry when it’s receiving the final boiling’. In Kashmiri cuisine, which uses a lot of meat, the salt is added at the initial or middle stage of cooking so that the meat also absorbs some of it. In my childhood days, when I used to prepare for exams on the last day, my mother used to address my way of studies using this phrase.

  In its annual results announced in May, the bank, under the new management, said that ‘most’ of the charges by Agarwal were unsubstantiated. It also hinted that there were some charges that were substantiated, but stopped short of disclosing any further information. ‘In January 2020, the then chairman of the audit committee of the bank highlighted certain concerns around corporate governance and other operational matters at the bank. The then board decided to get this investigated by an independent, external firm. A preliminary report has been received by the board. While most of the allegations are unsubstantiated, the board has requested the external firm for detailed recommendations highlighting areas where corporate governance can be further strengthened,’ it said in an annual filing.

  Remember that earlier in the book we had talked about Ravneet’s mentor Anshu Jain? It was around this time Anshu came into the picture.

  YES Bank, on 5 February, was reported to have appointed the Anshu Jain-headed global investment bank Cantor Fitzgerald and two domestic entities for its fund-raising plans. While this is what appeared in the media, Anshu had been working with YES Bank since the December 10 board meeting. He was brought on board before the furloughs in US. However, anything from him wasn’t materializing because Ravneet was spellbound by the $1.2 billion offer by Erwin Singh Braich. After all, it is understandable since such a big sum was involved. Other merchant bankers appointed by the capital-starved lender included IDFC Securities and Ambit Capital.

  Ironically, Anshu Jain was appointed as the merchant banker for yet another troubled private sector lender, Lakshmi Vilas Bank. This bank ultimately had a similar fate like that of YES Bank — it had to be bailed out in November 2020.

  Coming back to YES Bank’s dying days, on 22 January I had got a press note from the bank about a new deposit scheme. I sniffed something fishy. Why was the bank, which was staring at a collapse, offering a higher interest over the deposits? I called up the executives who had alerted me about the run on the bank. ‘They are trying to buffer up the deposit base,’ they said. The sources told me that the bank had witnessed withdrawals worth Rs 42,000 crore in the December 2019 quarter.

  However, as there was no document supporting this story, I held my horses. In the second week of February, I got my hands on these letters, confirming my story. I sent a mail to the bank about this by 7 February, which they acknowledged only after a follow-up mail twenty-four hours later. Given that I was certain about the story, the bank’s public relations team tried every trick in the book to stop it. Since the bank was not responding to my queries, I called up Ravneet Gill on the evening of 9 February to seek his comments. A clearly shocked Ravneet told me: ‘I don’t know where you got this information. I will have to check it,’ before disconnecting the call abruptly. Rather than addressing the issue, the CEO of the bank was more worried about how the information about the bank’s bad health had become public.

  At the grass-roots level, the word had spread among the lower-level employees. I spoke one of the many depositors at the bank, trying to gauge the mood. His account of things went like this:

  ‘For a long time, the experience with the bank had been good. The bank employees were prompt and cooperative. Our total money with them was more than Rs 30 lakh. We were never told of a problem and it wasn’t until the Deccan Herald report that I realized something was wrong. Once I had figured it out and begun dissolving the fixed deposits, the bank also figured that we knew. One of the employees contacted me and admitted that things did not look good but did not prevent me from removing my money. The actual relationship manager never really got in touch about it, but overall they were cooperative when I removed my family’s money from the bank. There was little conversation with the bank all through this.’

  This clearly establishes that the morale at the grass-roots level was completely broken.

  The day the bank failed and had to be bailed out, he had a further Rs 5 lakh in the bank, while he had moved the rest of his savings amounting to Rs 25 lakh to ICICI bank. ‘It was terrifying to think of losing that, despite having saved most of it. Hard-earned money is difficult to part with, irrespective of the amount. I went to the bank some days later and I could see people in despair, some were students with no money other than what was in their accounts and some were businessmen who had both their company’s accounts and savings in the bank. The bank staff was indifferent to them,’ he said.

  But this was not the only part of my story: the bank was also delaying its results because of erosion in its deposit base. SEBI regulations, under the compliance calendar, state that any listed firm must submit their results to the exchanges within forty-five days of the end of the quarter. They also need to inform the exchanges five days prior to holding the board meet to take on record financial results for the quarter. In the case of YES Bank, forty-two days out of these forty-five days were over when I rolled out the story on 12 February.

  After the story was published, the same evening, the bank confirmed delaying its results to 14 March — a month’s delay from the SEBI-stipulated deadline. In this exchange filing, the bank yet again got a new set of prospective investors, including J.C. Flowers & Co. LLC, Tilden Park Capital Management LP, OHA (UK) LLP (part of Oak Hill Advisors) and Silver Point Capital.

  ‘The bank and its financial advisers are currently in discussions with these investors on the commercial terms, including pricing, of their investments which, it may be noted, will be subject to certain conditions and receipt of requisite approvals, including regulatory approvals with respect to the size of the stake to be acquired, as well as necessary dispensations with regard to applicable pricing guidelines,’ the bank said in this filing.

  In fact, Anshu Jain, who was acting as an adviser to Lakshmi Vilas Bank too, had floated the name of Tilden Park for picking up a 10 per cent stake. Tilden Park is a fund that invests in stressed assets and has
said that it can invest up to $500 million in YES Bank. ‘There was a feeling that they will invest more,’ a former senior executive from the bank told me.

  Anshu Jain, who stayed at Deutsche Bank for twenty years and who Ravneet claimed was his mentor, didn’t have a graceful exit with the German lender. In June 2015, investor frustration about the bank’s performance had become obvious. At the annual meeting, 39 per cent voted against Deutsche’s management board and several investors called for Jain and his co-CEO Juergen Fitschen to resign.

  The surprise move came just over a month after Deutsche was fined a record $2.5 billion (£1.7 billion) for rigging London Interbank Offered Rate (LIBOR), ordered to fire seven employees and accused of being obstructive towards regulators in their investigations into the global manipulation of the benchmark rate. The penalties on Deutsche Bank also involved a guilty plea to the Department of Justice (DoJ) in the US and a deferred prosecution agreement. Jain headed its investment bank when LIBOR was rigged, but the bank said that he has been cleared of any wrongdoing.

  On 7 June 2015, he resigned as co-CEO of Deutsche Bank, along with Initially, Anshu was also accused of misleading German Federal Financial Supervisory Authority (BaFin) — a charge on which he was later given a clean chit.

  LIBOR is an average interest rate calculated through submissions of interest rates by major banks across the world. The scandal had come to the fore after US-based daily Wall Street Journal, on 16 April 2008, stated that some banks might have understated the borrowing costs they reported for the LIBOR during the 2008 credit crunch, which may have misled others about the financial position of these banks.

  Despite his global exposure, Anshu always maintained a connect with India. In a conference in London in 2015, he had said: ‘If there are ways in which I can help the country, I’ll always choose to do so.’

  Somewhere, given Anshu’s past, there was a feeling that YES Bank wasn’t able to attract the right people at right time — from O.P. Bhatt to Anshu Jain.

  But the bank had reason to hire Cantor and Anshu Jain. In the August issue, CLSA India Private Limited, J.M. Financial Limited, Motilal Oswal Investment Advisors Private Limited and Prime Securities Limited were the global coordinators and book running lead managers to the QIP issue. But none of them were able to get fresh foreign investors on board. The bank wanted foreign investors with huge coffers at this point in time.

  Back at YES Bank, questions were raised about the board and its standards. But to be fair, many of the directors on the board seemed to be naïve based on the interviews that I had conducted for this book. Many said that they didn’t go back home and read the documents offered to them during these meetings. This, in many ways, raises questions on the seriousness of the board members in India Inc.

  In fact several board members said that they used to believe what was put forth by the management. ‘You know data can be misrepresented,’ a board member told me.

  This dilly-dallying dented the credibility of the RBI as well. The RBI had appointed celebrated deputy governor Rama Subramaniam Gandhi to the YES Bank board as the nominee director. At the time of his appointment, in 2019, a senior RBI official told me, ‘We have appointed Gandhi on its [YES Bank’s] board. We know there is a problem, and by appointing him we are giving it due importance.’

  But what did Gandhi do on the board? Every time the board announced that it was raising funds, Ravneet used to say that it was the unanimous decision of the board — and that included Gandhi. In fact, Gandhi was part of the board that was dismissed on 5 March by the RBI, only to be reinstated later on when the SBI acquired the majority stake in it.

  But what was Gandhi doing when the bank delaying much-needed fund-raising. In fact, in every board meeting those days, it was being discussed that it was a do-or-die situation for the bank.

  I tried asking many members of the board. Gandhi, on the face of it, seemed to have adopted a prolonged wait-and-watch strategy. ‘Towards the end, whenever the discussion used to take place, I remember Mr Gandhi used to be called. He was there. He would be like yes, I am aware. It was quite obvious that the RBI knew what was happening. We used to feel that the RBI was trying to give some more time to see if something could emerge out of it.’

  Gandhi was appointed to thwart any undue influence by the nominees of the promoters on the board. How successful he was is subject to conjecture. In my opinion, he wasn’t. There was a lack of confidence in the management and the board by the investors. ‘There was a feeling that the bank wasn’t doing enough. So, none of us were willing to park our bets on that management,’ one of the investors, who later parked money at YES Bank said.

  There was also chatter about Rana Kapoor still asserting some control over the board but the senior management was quiet on this. In fact, one of the senior executives from the risk team, who was a part of Rana’s cabal, still had access to the board and was attending the meetings regularly, in which Gandhi was also present. This is why I say that Gandhi wasn’t able to achieve what he was tasked with. Also, Gandhi, who is based out of Bengaluru, used to just fly in for the board meetings.

  The board members interviewed said that they were never provided with the binding offers. But there were supporting documents that were provided to them. Agarwal has, in fact, claimed on record that there were no binding documents provided in these cases.

  A senior executive, who was closely working on those deals, rubbished these charges when I questioned him about this. ‘Every single document pertaining to the offers we received is with the company secretary of the bank and these were also duly shared with the regulator. So, what you’ve been allegedly told is utter rubbish.’

  In fact, I don’t blame Ravneet for not sharing documents with the board. To give you some perspective, the first time I spoke to Agarwal, he was towing Rana Kapoor’s line. The allegations he was making seemed eerily familiar with those made by the bank under Rana’s leadership. At one juncture, he told me, ‘Aapko mai yeh bol raha hu, aap yeh likhiye (You write what I am telling you).’ It agitated me, and I had no doubt in my mind that here was a guy who had some agenda.

  Other than him, the fear was that most of the directors on the board of the bank, which was not reconstituted after Rana Kapoor’s exit, were supporting and leaking information to Rana Kapoor. The fear was that in a bid to make a comeback, Rana might sabotage the plan, said one of the board members.

  One of the directors, who was neutral in all this told me: ‘How could he have trusted them and given them the binding offers when they were all Rana’s men?’

  These apprehensions were shared by most of the regulators I interviewed for this book. ‘There were a lot of old-timers on the board of YES Bank. Ravneet tried everything he could. And he had to deal with Rana as well,’ one of the top market regulators told me.

  On the other side of the spectrum, SEBI was playing spoilsport. One of the biggest challenges for the bank, regarding raising of capital, was that the investors did not believe that the pricing, as per SEBI norms, was reflective of the intrinsic value of the shares and therefore they wanted pricing dispensation.

  If equity shares of the issuer have been listed on a recognized stock exchange for a period of twenty-six weeks or more as on the relevant date, the equity shares must be allotted at a price which is equivalent or lesser than: one, the average of the weekly closing price which is related to equity shares that are quoted on recognized stock exchange for twenty-six weeks preceding the specific date; or, the average of the weekly closing prices of the related shares quoted on a recognized stock exchange for two weeks preceding the specified date.

  However, due to lot of stressed lending, YES Bank’s actual net worth at that point of time was (-)Rs 13,400 crore (yes, in negative). So, in essence, it meant that if the bank was liquidated at that point, the shareholders of the bank (roughly 16 lakh retail shareholders) would have to cough up this much money in an ideal scenario.

  But SEBI declined to weigh in. Even the SBI was of the view th
at if it invested in the bank it would be at a significant discount to the market.

  In all of this, many of my reader friends who were banking with YES Bank were getting in touch with me. Many even asked me pointedly, till when will the bank survive? I had to be guarded but honest. So, I would say: ‘You never know, but if things continue as they are, the bank can’t survive for more than five–six weeks.’

  DOOM’S DAY

  Days before its mighty fall, YES Bank had become the theatre of the absurd. At a time when brokerages were just stopping short of publicly giving calls on YES Bank, astrologers threw their hats into the ring.

  In one such blog, astrology website GaneshaSpeaks expected the bank’s troubles to end by March 2020. And their logic: ‘On analyzing the Surya Kundali of YES bank, it can be found that it is under the influence of the inauspicious planetary transit of Saturn. Saturn Sade Sati is responsible for the struggles and disturbances in its operations. This may be having an impact on your life as well! Know its effects and remedies with your personalized Saturn Sade Sati report now! Chances are that it may find relief from the said situation in the year 2020 post-March. Until then, it may face more challenges in its way, foresees Ganesha.’

  So how was the planetary movement affecting the bank, according to GaneshaSpeaks?

  ‘Currently, Saturn is transiting over the ascendant house in Surya Kundali. This transit affects the natal Sun adversely, hence, the bank is likely to face difficulties on the side of the government authorities. It might get affected by changes in the rules and regulations of the banking sector. In the bank’s Surya Kundali, Jupiter is transiting from the 12th house of loss and secret enemies, which adds up to the adversity of the situation. There are chances of financial losses in the current period. This might only further increase the financial pressure and hardship on the bank,’ the blog published on Yahoo predicted.