Ironically, Axis Bank, about fifteen months back, was in a similar situation with its long-serving CEO Shikha Sharma being ousted by the RBI due to massive deterioration in asset quality. She was succeeded by Amitabh Chaudhary, who unlike Ravneet Gill’s media blitzkrieg, decided to stay put in the board room rather than the newsroom. The result was that one year later Axis Bank was bailing out YES Bank.
For private investors, there was to be a three-year lock-in period on 75 per cent of their investments in YES Bank. However, the lock-in period for the SBI was to be only for the 26 per cent of the shareholding. The authorized capital of the lender had been increased to Rs 6200 crore from Rs 1100 crore.
Also, according to the initial scheme, AT1 bonds of YES Bank, worth Rs 8415 crore, were written down completely, for which bondholders went to court. AT1 bonds are issued by banks to shore up capital and are a form of debt capital. These bonds are perpetual in nature and pay high coupons or interest rates.
However, the final scheme was silent on their status, but the bank’s interpretation of their legal status brought the write-down into effect, causing many retail investors to lose money. Some of these investors were retired individuals who had parked a sizeable chunk of their life savings in these bonds at the behest of relationship managers from the bank in 2017. The case in this regard is ongoing in the Bombay High Court.
The restructuring plan also led to a further churning in YES Bank’s ownership (explained in Figure 1 below), which over the past one year had become very fluid, as we saw in the previous chapters.
Figure 1:
Source: Company filings
Retail investors now owned just 12.77 per cent stake in the bank, while the financial institutions that had bailed it out owned one-third. The SBI alone had replaced all the retail shareholders combined with a stake amounting to 48.21 per cent.
The silver lining for the bank was the appointment of Sunil Mehta as its chairman. Mehta was at the helm of Punjab National Bank between May 2017 and September 2019, and had helped it recover from the $2 billion fraud by Nirav Modi and Mehul Choksi, in collaboration with some of the employees of the bank. Prashant Kumar, who was appointed as the administrator on 5 March, took charge as the MD and CEO of the bank.
But the story wasn’t over. On 14 March, the bank was set to announce results.
The bank had scheduled a presser for its Q3 results, which were delayed by a month amid its deteriorating financial condition. The presser was slated to happen at 11.45 a.m. but was abruptly cancelled. It was assumed that the bank would just put the filing on the exchanges at any second. Markets got worried, as they started anticipating a hole in bank’s financials during the October–December quarter, bigger than they had initially thought.
The delay was too long. The exchange filings came in at 10.55 p.m., almost twelve hours later. The bank had reported a staggering loss of Rs 18,564 crore in October–December. The loss is the biggest-ever quarterly loss by any bank in India, toppling the Rs 13,417 crore loss by the PNB in 2018 by over Rs 6100 crore. During the quarter, the bank’s gross bad loans surged to an astounding Rs 40,709.2 crore, more than doubling in just three months from Rs 17,134 crore. The gross NPA percentage of the bank stood at an unprecedented 18.87 per cent. The bank’s capital adequacy ratio also took a hit, dropping to a paltry 4.2 per cent, way below the RBI’s stipulated limits and hinting at quick bankruptcy if the central bank didn’t assum control.
Confirming my newsbreak from February, the bank had seen a huge run in the third quarter as its depositor base eroded by Rs 43,764 crore to Rs 1.65 lakh crore. The run on the bank continued into the January–March quarter as the bank has seen its deposit base further erode by Rs 28,200 crore, till the RBI plugged the withdrawals by placing a moratorium.
On 18 March, as the moratorium was lifted, the run on the bank resumed. In just twenty-five days after 5 March, the bank saw its deposit base erode shrink by one-fourth or Rs 32,191 crore, most of which came after the moratorium was lifted and the depositors sought refuge with other banks.
Figure 2:
Source: Company filings
Since the day SBI assumed control of the bank, the deposit base further eroded by a whopping Rs 34,789 crore. The deposit base of the bank, as of May 2020, stood at Rs 1.02 lakh crore, less than half of what it used to be at the end of September 2018 (explained in figure 2 on the previous page). The deposits have been coming steadily since March 2019, leading to a dearth of funds for the bank. The erosion in deposits also takes away the current accounts and saving accounts from the bank.
ED INVESTIGATIONS AND COBWEBS
Much before the fall of YES Bank, an asset manager who had been close to the NDA government, once told me, ‘Rana pakka andar jaayega. Aap dekhte jaaiye, sir (Rana Kapoor will be arrested for sure. You just wait and watch).’ One of Rana Kapoor’s industrialist friends, who I interviewed during the course of the book, said that Rana knew he was going to be arrested by the ED right in January end. ‘He tried adjusting his books by that time and settling the accounts,’ the friend said. This probably explains his trip to London in the middle of January. And the asset manager wasn’t wrong, for Rana Kapoor was arrested on Saturday, 7 March 2020, two days after the fall of YES Bank.
Rana was a man who, till two years ago, thought of himself as invincible. In 2017, at his eldest daughter’s wedding, Union Minister Piyush Goyal and his wife were at the reception, posing with the Kapoor family. Tata Sons chairman N. Chandrasekaran, and Bollywood superstars Shahrukh Khan and Salman Khan were also there. But there was no one around as his deeds (or misdeeds, as the court decides), landed him in jail.
The political pressure was huge: after all, it was the fourth largest private bank that had failed. Had the RBI waited for fifteen more days, the bank would probably have been bankrupt, triggering a situation similar to the global financial crisis in the US during 2008, when global banks were collapsing like a pack of cards. Everyone in the financial industry was baying for Rana Kapoor’s blood. ‘The government will fall if it doesn’t come up with anything concrete, there will be chaos,’ one bank chief told me on 7 March.
Within hours, Rana Kapoor was arrested by the ED. From 5 March till 19 March, the ED tried to establish the flow of money, interrogated Rana Kapoor six times and recorded his statements. Other than Rana, there were seven more statements that were recorded. The first statements to be recorded were of the people associated with DHFL and the Wadhawan family — CA Sonpal Jain and Rajendra Mirashie, the head of project finance at DHFL. On the same day, Rana Kapoor’s eldest daughter, Radha Kapoor Khanna, was interrogated. On 11 March, his youngest daughter, Roshini Kapoor, and YES Bank’s former CEO Ravneet Gill were quizzed. The statements, which have been enlisted in the chargesheet, were recorded till 19 March. A lot surfaced in those rounds of questioning.
Unlike a police statement, where an accused can change his statement in the court, the statements taken by the ED go on record in the court of law. Rana Kapoor was not cooperative in the questioning by the ED. He is allegedly said to have changed his statements multiple times. But why was he not cooperating? Many who watched the developments closely felt that Rana was trying to shield his daughters. ‘He was very careful. It was clear that he was trying to shield his daughter,’ one person who followed the ED investigations closely told me.
Yes, Rana was very protective of his family. Back in 2012, a video of a young lady in a lip-lock with a Bollywood heart-throb got leaked on the Internet.1 Afterwards, it was alleged that it was one of Rana’s daughters, who was a minor back then. Soon, the video disappeared from the Internet. Many, who have followed Rana closely, say that it was he who got that video removed from the website.
Other than his family, Rana Kapoor had many allies but no friends. People who covered the ED, told me, during the course of the interviews, that it was only Rana Kapoor’s wife, Bindu Kapoor, and Aditya Khanna, Radha Kapoor Khanna’s husband, who regularly visited him in jail. In fact, one of his few friends, who was a
cting as a shield for him during the trial, had some harsh words to say about him. ‘He [Rana] has become way too arrogant,’ he said.
Probably, Rana Kapoor, because of this arrogance, earned more foes. According to a senior business journalist, ‘Every business has some wrongdoing. But the thing is how soon can you correct it and how far you go. Probably he (Rana Kapoor) went too far.’ Over the years, Rana Kapoor had narrowed his circle down due to internal fears. He became more and more of a family man. ‘From what was coming out on a daily basis, it was clear that Rana Kapoor was a kind of insecure man,’ a journalist who tracked the YES Bank fallout closely said. In a contrarian point of view, it was a ‘big brother club’, where the partners dump you once you get caught.
But law enforcement agencies have their own way of making people speak. In the PMC Bank scam, when Sarang Wadhawan, aka Sunny Dewan, was arrested, he acted arrogant in front of the ED and was allegedly made to stand all night to break his silence. ‘In Rana Kapoor’s case, they could even reduce access to home-cooked food. It would have disturbed him, as he wasn’t keeping well,’ a senior journalist told me. In fact, in the bail plea, his advocate told the court that he suffers from a chronic immunodeficiency syndrome which causes recurrent lung, sinus and skin infections. ‘This combined with his history of longstanding bronchial asthma since childhood still requiring inhalers put him at high risk of a severe lung infection which can lead to death,’ it stated and added that he needed to be kept at a distance from other prisoners.
After hearing all this, I wanted to understand Rana Kapoor’s side of the story. I called up his eldest daughter. She asked me to send her questions over WhatsApp.
Here is my message to Radha Kapoor, when I tried asking her about the fraud at YES Bank, which I sent to her on 19 June 2020:
‘Hi Ms Radha,
Appreciate your response on the phone. There are some questions that I would want to ask you for the book:
Can you tell me about how did you, as a family member, see things shaping out when YES Bank started operations in 2003?
When there was a tussle going on between Ms Madhu Kapur and Mr Rana Kapoor for the control of YES Bank, who were the extended family members supporting?
The family of late Ashok Kapur has long been alleging that there was a power grab by Mr Rana Kapoor. How did you see to those allegations?
When the bank was seeing huge credit growth during 2012 – 18, Mr Kapoor used to hold lavish parties for his borrowers at his house in Samudra Mahal, Worli. How did you see to those parties?
How did you feel, personally, when pledge on shares of Morgan Credit in YES Bank was invoked by RNAM last year?
ED Chargesheet, including many things, has chargesheeted, that the companies controlled by Mr Kapoor family, which includes you as well, were talking kickback for the loans that did not deserve to be sanctioned? Were you aware that this was happening? How do you see to it?’
On 20 June 2020, Rana Kapoor’s lawyer Subhash Jadhav, who was actor Sanjay Dutt’s lawyer in the infamous arms case, sent me this reply on their part:
We write to you on behalf of our client Ms Radha Khanna. We have noted the questionnaire sent by you. In response to the same we would like to state that the matter is sub judice and it is at very preliminary stage. Complaint filed by ED is not a statement on the expression of merits and neither concludes or affirms any fact. Our clients maintain that Mr Rana Kapoor and the family members are innocent and cannot be and should not be subjected to trial by media. Your attempt to make any publication by drawing any inference without adjudication on merits by the competent courts will amount to trial by media and invasion of the rights of privacy of our clients. Our clients are entitled for free and fair trial as envisaged by the constitution and therefore they are not going to respond to any of your queries. Our clients reserve its rights to take appropriate steps to protect its valuable constitutional rights including rights to bring actions under the contempt laws if you will resort to unnecessary sensationalism by publishing any stories which will malign or defame our clients, or in any way interfere with the right to fair trial of our client. You are thus hereby warned not to indulge into any such publication when the trial is at a preliminary stage. Needless to state any such publication shall be at your risk and consequences. We reserve our right to take appropriate proceedings against you.
Advocate Subhash Jadhav
When I asked Jadhav to arrange a meeting with Rana Kapoor, he denied access. I had explained to him that I wanted to talk only about the charges, and had mentioned this in my message too, and that at no point was I trying to do a media trial. But as they say, old habits die hard. Rana Kapoor used to intimidate journalists who were critical of him through defamation cases, a legacy he had left behind in YES Bank. But for me, this wasn’t a new thing. YES Bank had tried to silence me previously through legal notices, yet I was here. The defiance came in the face of 16.2 lakh investors losing a substantial chunk of their earnings due to the bad loans lent out during Rana Kapoor’s time.
One such aggrieved retail investor told me: ‘I kept always thinking that someone will bail out the bank. I thought that share prices will go up gradually. What happened in the bank is very bad… It’s like the fence eating the crop. Retail investors can’t do anything. He [Rana] will always be hoping for reversal of fortune. For me, after losing more than Rs 100 per share, it did not make sense to sell and save some Rs 30–40 per share.’
Even after this crisis, Rana Kapoor wasn’t one to be broken. His friend, who attended the trials, told me that at times Rana Kapoor would argue his case himself, sometimes better than his celebrated lawyer.
Radha Kapoor Khanna in her statement recorded on 7 March 2020, as the ED chargesheet reveals, said that she had had no knowledge of the source of investment into Morgan Credit Pvt. Ltd and YES Capital Pvt. Ltd — the holding promoter companies in YES Bank where Rana’s three daughters held one-third ownership each. This brings us to two possible conclusions: either she actually didn’t know the source of money, or she was lying to the investigators — both of which are a possibility. In the case of she not knowing, it is worth wondering how she was among the promoter group of India’s fourth largest private bank, when she didn’t even know the source of the money in her own company? In that case, this is nothing but the highest level of nepotism and the lowest standard of governance.
In his statement to the ED on 11 March, Ravneet Gill put the entire blame on Rana Kapoor. He blamed the fall of YES Bank on poor credit culture, poor compliance culture, centralization of power and lack of institutionalization during Rana Kapoor’s time. From all the interviews I conducted, everyone had the same opinion, that there was centralization of power during Rana Kapoor’s time. Before we dwell into what the ED’s first chargesheet alleged, let’s take a look at the structure of the Wadhawan family, which has been integral to the YES Bank scam.
DHFL and HDIL — companies now facing bankruptcy and money laundering allegations — are realty and housing finance businesses run by two branches of a family. Rakesh Wadhawan of HDIL is the younger brother of late Rajesh Wadhawan, whose children Kapil and Dheeraj now run DHFL. Their father, Dewan Kuldip Singh Wadhawan, came to Mumbai from Lahore after the Partition and started the business. The family split in 2008 and a 2010 agreement formalized their separation.
While the ED had been keenly investigating YES Bank’s links to the DHFL group, the bank’s involvement role in HDIL can’t be ignored as well. In fact, the PMC Bank scam that happened in September 2019 should have led the investigating authorities towards YES Bank. The allegations of evergreening became obvious with the Mackstar fiasco in August 2019. According to the offshore investor Ocean Deity Investment Holdings—an erstwhile arm of DE Shaw and the 78 per cent owner in Mackstar, the Indian joint venture (JV) where HDIL entities hold minority stake—the loans from YES Bank to the JV were not authorized by the majority shareholder. The money was transferred to bank accounts of other HDIL group companies, almost simultaneousl
y, to repay loans taken by them from YES Bank. HDIL, owned by the Wadhawan brothers, was also involved in the PMC Bank scam.2
The two families were known for living luxuriously—Bollywood stars as party guests, a phalanx of expensive vehicles, private jets and yachts, vaunted thoroughbreds to signal status, and Russian and Israeli bodyguards to avert harm. One of the friends of the Wadhawans told me that they fleeced banks to keep up their extravagant lifestyle. ‘I know of days when they felt bored in Mumbai the in morning, went for a lunch to Dubai and came back in the evening. I have known them for twenty years now,’ he said.
YES Bank had about Rs 3700 crore exposure to HDIL, but this was not the only stressed asset that the bank was facing. The list included ADAG, Cox & Kings, Zee, CG Power, DHFL and many others. It validates the moniker that the markets had given to Rana Kapoor — the lender of last resort.
Initially, it was alleged by the investigating authorities that DHFL had sanctioned a loan of Rs 600 crore to DoIT Urban Ventures, which according to the ED was controlled by Rana Kapoor’s family. This happened at a time when DHFL failed to repay its dues to YES Bank. The debt exposure in DHFL in terms of short-term debentures between April and July 2018 was Rs 3700 crore. YES Bank also gave a loan of Rs 750 crore to RKW Developers, which is under the scanner for financing underworld kingpin Dawood Ibrahim’s aide Iqbal Mirchi, who purchased properties in south Mumbai. But that is just the tip of the iceberg. The chargesheet by the ED alleges a fraud of a huge magnitude.
The charges included kickbacks of more than Rs 5500 crore, anomalies and discrepancies in distributing bank loans to corporate entities, extended credit facilities by misusing official position, creating shell companies for laundering money, defaults and creating tainted assets. Other than Rana Kapoor, the complaint by the ED, running into more than 10,000 pages, named his wife, Bindu; daughters Rakhee, Roshini, and Radha; and three firms, Morgan Credits, RAB Enterprises (India) and Doit Urban Ventures, controlled by them, Business Standard reported in May.
The Banker Who Crushed His Diamonds Page 13