‘The bank is not getting any support from its promoters, promoter group and group companies, and the situation is hostile. This causes serious prejudice to the bank from undertaking any fund raise, as the eligibility criteria and disclosure requirements associated with any mode of fund raise requires various information and confirmations from its promoters, promoter group and group companies,’ the SEBI letter to the bank, dated 9 June 2020, said, clearly underlining the primary motive behind the move.
The move paid off. The bank saw its deposit base expand for the first time in quarter that ended in June 2020, hinting at a semblance of confidence of customers after an SBI-led bailout.
At the end of June 2020, the deposit base of YES Bank stood at Rs 1.17 lakh crore, from Rs 1.05 lakh crore three months ago—a jump of Rs 11,996 crore (11.3 per cent). During the previous financial year, the deposit base of the bank had more than halved as customers were losing confidence in the bank.
The deposits had grown primarily because of deposit inflow from the wholesale banking side. The corporate deposits grew by 25 per cent during the quarter to Rs 48,000 crore, from Rs 38,300 crore. However, CASA accounts remained more or less flat for the bank.
The bank also went for a further public offer (FPO) in July 2020. The FPO by the lender, on 17 July, has managed to sail through on its last day, even as the offer for sale was undersubscribed.
The bank was able to raise Rs 14,266.97 crore through the capital-raising drive.
Of the 1251.51 crore shares that were offered for sale in the price band of Rs 12–Rs 13 per share by the bank, 1189.41 shares were subscribed. The subscription was mainly driven by the qualified institutional buyers (QIBs) and anchor investors. Sans anchor investors, the bank’s share subscription stood two percentage points lower at 93 per cent.
On 14 July, the bank had raised Rs 4098 crore from fourteen anchors at Rs 12 per share, with 341.54 crore shares fully subscribed. The anchor investors included US-based stressed asset fund Tilden Park Capital via Bay Tree India Holdings LLC; Singapore-based fund management company Amansa Capital and UK-based fund management company Jupiter Funds. Collectively, these three foreign investors came together to acquire 75 per cent of the shares offered to the anchors.
Interestingly, Tilden Park, which invested about Rs 2250 crore in the bank, was interested in investing in the bank under the previous management as well. The other domestic institutions that invested as anchors included HDFC Life Insurance, Bajaj Allianz Life Insurance, ICICI Lombard General Insurance, Reliance General Insurance, RBL Bank Limited, Edelweiss Alternative Asset Advisors, Elara India Opportunities Fund, Hinduja Leyland Finance and ECL Finance. The non-anchor institutional investors’ portion was oversubscribed 1.90 times, with the bank being able to raise Rs 6281.82 crore from them.
As per market sources, a total of twenty-seven institutions such as SBI, LIC, IIFL, Edelweiss, Bajaj Allianz, HDFC Life, Punjab National Bank, HDFC Mutual Funds, Union Bank, Bajaj Holdings, Avendus Wealth Management, IFFCO Tokio General Insurance, Norges fund, Schonfled, Millennium Management Global, Aurigin Capital, Exodus Capital, Wellington Capital, Jane Street Capital, Segantii Capital Management Ltd and D.E. Shaw & Co. bid for the non-anchor QIB portion. However, the retail portion and the employee reserved portion of the FPO was heavily oversubscribed. Retailers, who were the worst hit by the near-collapse of YES Bank, subscribed to just 47 per cent of the shares reserved for them. On the other hand, the bank’s employees subscribed to just 33 per cent of the shares reserved for them.
The non-subscribed portion of the FPO, as per it’s underwriting agreement with the bank, was to be allotted to SBI Capital Markets, who had agreed to underwrite Rs 3000 crore worth of shares at a price equal to the lowest end of the price band.
CONCLUSION
YES Bank was brought back from the brink, but the way the entire operation was conducted raises a lot of general and a few specific questions. Bailouts aren’t new to the Indian financial system — the recapitalization of public sector banks is nothing but a form of bailing these banks out of a financial mess and the crunch of capital. Going back in to the annals of history, by the mid-1980s, operational and allocative inefficiencies caused by the distorted market mechanism led to a serious deterioration in the profitability of public sector banks, according to volume IV of RBI History.
The central government was aware of this and, in 1985, former finance minister V.P. Singh, while delivering an address at the golden jubilee celebrations of the RBI, said, ‘The time has come for the banking system to embark on a phase of consolidation, in which improvement in operational efficiency must be the key concern.’ It became necessary to enhance the profitability of public sector banks so as to ensure the stability of the financial system. The restructuring measures for these banks included improving profitability, debt recovery, customer service and streamlining the payment and settlement mechanisms, besides continuing efforts to update the legal system. The major policy changes were the introduction of treasury bills, the creation of money markets and the rationalization and partial deregulation of interest rates.
However, this was to do with public sector banks. They are the pillars of the economy and the pillars of trust of the financial system. That is why former RBI governor Urjit Patel had also been supportive of the periodic bailouts of the public sector banks. ‘It is possible that episodic high-risk perceptions for the banking and financial sector as a whole will persist. Market perception is that the principal owner is one step behind regarding capital infusion into its banks due to fiscal constraints,’ Patel had said in Stanford University on 3 June 2019.
However, that said, in many cases, the political lending and the corruption by various level of management at the public sector banks has historically led to financial woes. The $2 billion Nirav Modi scam wouldn’t have taken place had the employees of Punjab National Bank not collaborated with the fraudsters. In such cases, the bailouts of public sector banks should be accompanied by a detailed investigation of the role of the bank’s employees. But why should the government or public banks be saving the private banks, especially when the shenanigans of the management have led to the failure of the institution?
‘In my view, some of these collapses have been idiosyncratic, specific governance failures. Those will always happen and will have to be dealt with,’ former deputy governor of RBI Viral V. Acharya once told me during an interview, when I asked him about the recent banking failures. Indeed, he is right. The management plays an important role in the private sector. In the financial sector, the right management will create an HDFC Bank or a Kotak Mahindra Bank, while bad management may end up creating a YES Bank or a DHFL. It is extremely important that the RBI focuses on management and their governance. But it has hardly done that, at least not till the time the mess got real.
While the government’s bailout may save the institutions, what happens to the depositors and the investors in these cases? Imagine a retail investor who would have invested Rs 1 lakh in YES Bank on 3 September 2019, when the bank’s inability to raise funds was clearly visible but no one had raised any red flags? His investment would be worth just Rs 24,000 after one year, causing him to lose over Rs 75,000. What is such a retail investor’s crime? He believed in the assurances doled out by the bank’s communication team, or he believed that the regulators would have raised red flags if the bank was crashing? Who would be the fall guy in this case? Would it be Rana Kapoor? The problem in India is very deep-rooted: financial crimes are usually taken very lightly. If Bob (imaginary name) kills one person in India, he has more chances of getting punished than a situation where he destroys the livelihoods of millions of people. And that is where, we, as a country need a psychological modification.
The case against Rana Kapoor will go on for years. People will forget about it with time. Rana Kapoor may fade into the background, having hardly paid for the damage he has done to the financial system. People will forget that Rana shattered the trust in the financial system. And Rana is
n’t alone here. Between 2018 and 2020, we saw four financial institutions facing the downfall—IL&FS, DHFL, YES Bank and PMC Bank. And in all the four cases, the management had been idiosyncratic.
In fact, the curbs on withdrawal at PMC Bank forced its largely middle-class depositors to survive on charity and borrowings. The PMC crisis also sparked courtroom battles. In one of them, Sandeep Bhalla, whose parents had nearly Rs 10 lakh blocked in PMC, told the Delhi High Court that the depositors of PMC were ‘discriminated against’ compared to YES Bank’s. The finance ministry told the court that the government had not infused any funds into YES Bank, it was the investors and the SBI who came to its rescue, according to court documents. The SBI is 57 per cent government-owned. The judge wasn’t convinced.
Noting that the PMC depositors were in a ‘dire state’, the court said that the RBI and the finance ministry played a crucial role in rescuing YES Bank and asked them both to ‘delve into the aspect’ of why PMC depositors were treated differently. Having said that, there is always scope for improvement. We have to ensure that our financial sector is well capitalized through stress tests.
Stress testing is a computer-simulated technique to analyse how banks and investment portfolios fare in drastic economic scenarios. Stress testing helps gauge investment risk and the adequacy of assets, as well as evaluating internal processes and controls. Also, the RBI needs to increase its supervisory cadre, along with modernizing it in line with global best practices—and there is apparently a blueprint for it at RBI. Whatever happened to that proposal is anyone’s guess.
1 Bhupesh Bhandari, ‘LUNCH WITH BS: Rana Kapoor’, Business Standard, 14 June 2013, https://www.business-standard.com/article/opinion/lunch-with-bs-rana-kapoor-105030801008_1.html
2 ‘When a Banker Turns Entrepreneur’, Financial Express, 16 November 2003, https://www.financialexpress.com/archive/when-a-banker-turns-entrepreneur/87094/
1 Anita Bhoir, ‘History Repeating Itself At Yes Bank, Says Harkirat Singh’, Economic Times, 26 June 2013, https://economictimes.indiatimes.com/industry/banking/finance/banking/history-repeating-itself-at-yes-bank-says-harkirat-singh/articleshow/20771853.cms?from=mdr
2 Bhupesh Bhandari, ‘LUNCH WITH BS: Rana Kapoor’, Business Standard, 14 June 2013, https://www.business-standard.com/article/opinion/lunch-with-bs-rana-kapoor-105030801008_1.html
3 https://www.moneylife.in/article/earlier-rbi-officials-got-off-with-much-worse-while-dr-chakrabarty-was-mowed-down/7937.html
4 https://economictimes.indiatimes.com/industry/banking/finance/banking/history-repeating-itself-at-yes-bank-says-harkirat-singh/articleshow/20771853.cms?from=mdr
5 Ritu Sarin, ‘Priyanka’s Sale of Husain Painting to Rana Kapoor Could be Proceeds of Crime: ED’, Indian Express, 24 March 2020, https://indianexpress.com/article/business/companies/yes-bank-crisis-priyankas-sale-of-husain-painting-to-rana-kapoor-could-be-proceeds-of-crime-ed-6328448/
6 Anita Bhoir, ‘Rabobank Tweaks Plan for India Presence’, Business Standard, 5 February 2013, https://www.business-standard.com/article/finance/rabobank-tweaks-plan-for-india-presence-107072601064_1.html
7 https://www.deccanherald.com/business/business-news/yes-bank-crisis-the-banker-who-crushed-his-diamonds-811863.html
1 Gopika Gopakumar, ‘Yes Bank Faces Fresh Audit into Complaints by Whistleblower’, LiveMint, 13 November 2019, https://www.livemint.com/industry/banking/yes-bank-faces-fresh-audit-into-complaints-by-whistleblower-11573668757156.html
2 Nikhat Hetavkar and Anup Roy, ‘YES Bank’s Handling of Matters Disappointing: Rentala Chandrashekhar’, Business Standard, 20 November 2018, https://www.business-standard.com/article/finance/yes-bank-s-handling-of-matters-disappointing-rentala-chandrashekhar-118112001232_1.html
3 https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=47983
https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=939
4 Surabhi, ‘Board United on Raising As Much Capital As Needed: Ravneet Gill’, 4 October 2019, https://www.thehindubusinessline.com/money-and-banking/board-united-on-raising-as-much-capital-as-needed-ravneet-gill/article29592662.ece
1 ‘New YES Bank CEO Ravneet Gill Is a Cricket and Art Fan’, Economic Times, 24 January 2019, https://economictimes.indiatimes.com/industry/banking/finance/banking/new-yes-bank-ceo-ravneet-gill-is-a-cricket-and-art-fan/articleshow/67673027.cms?from=mdr
1 ‘European Entities Showing Interest in YES Bank, May Invest $1 Billion’, CBNC-TV 18, 24 December 2019, https://www.cnbctv18.com/finance/european-entities-showing-interest-in-yes-bank-may-invest-1-billion-say-sources-4927421.htm
1 ‘Who Was Ranbir Kapoor Kissing?’, BollywoodLife, 16 August 2012, https://www.bollywoodlife.com/ndtv/who-was-ranbir-kapoor-kissing-134717/
2 Sugata Ghosh, ‘Lens on Mack Star Dealings: Evergreening Allegation Against HDIL and YES Bank’, Economic Times, 2 August 2019, https://economictimes.indiatimes.com/industry/banking/finance/banking/lens-on-mack-star-dealings-evergreening-allegation-against-hdil-and-yes-bank/articleshow/70490836.cms?from=mdr
3 ‘ED Probe Shows How Rana Kapoor Became a Larger Than Life CEO’, Outlook, 12 May 2020, https://www.outlookindia.com/newsscroll/ed-probe-shows-how-rana-kapoor-became-a-larger-than-life-ceo/1831634
Acknowledgements
The story of YES Bank, which I have narrated here, is a combination of first-person accounts, the data analysis of YES Bank’s financials over the year and interviews with people associated with the bank.
There are many people who need to be thanked for this book. My editor at Deccan Herald, Sitaraman Shankar, deserves a lot of gratitude. I was less than four years into my career as a journalist when I started working on the YES Bank story. He supported and encouraged me despite knowing the legal perils we would face. I’d also like to thank my deputy editor, B.S. Arun, who quite literally held my hand as a cub reporter. I remember him editing my copies even on his weekly offs. His support pushed me to pursue bigger stories every day. He remains my first guru in journalism. Many thanks to my reporting manager and business editor, Mahesh Kulkarni. He is a friend and a boss. He has been my advocate for growth in my professional life.
I would also like to thank my then colleagues at office, Nikhil Varma and Samiksha Goel, for bearing the burden of the desk while I researched. I would also like to thank my dear friends at office Pulkit Gupta (Guptaji) and Chaitanya Gudipati (CG), who have been a pillar of strength in tougher times. I would also like to thank my colleagues and management at Deccan Herald for their continuous support.
I’m grateful to former finance minister of India P. Chidambaram for helping me with this book. I remember him readily agreeing to share his perspective as a policymaker. I would also like to thank former RBI governor Dr Raghuram Rajan. His perspective was invaluable.
I would also like to thank my editors, Shreya Punj and Aslesha Kadian, for their work on the book.
Veteran journalists Raghu Mohan and Lekha Rattnani, thank you for helping me with the book. I would also like to thank Vivek Kaul, the author and columnist, for his guidance. I would also like thank my friend and fellow journalist Siddharth Zarabi for helping me with the right contacts. I would also like to thank my friend Syed Tabeer Riyaz, a lawyer who patiently helped me comprehend the legal clauses associated with YES Bank.
I would also like to thank the seventy people whom I interviewed through the course of this book, despite the fact that any activity about the bank was under the radar of the investigating authorities. I am not revealing their identities to respect their privacy.
I would like to thank my best friends Ehtesham Khurshid and Sajid Baksh, who are more like a family to me. They have been pillars of support.
I would like to thank my uncle Riyaz A. Qadri for being the pillar of support right from childhood.
I would also like to thank my brother, Farzan Moharkan, for bearing with me when I wrote this book. I would also like to thank my father, Altaf A. Moharkan. A former banker, he laid the foundations of understanding banking in me. I
would like to convey my highest gratitude to the two most important women in my life—my mother, Arjuman Altaf; and my wife, Novsheba Showkat. It couldn’t have been possible without you two. These two women also deserve a special mention because they bore with my gyan-giving spree during the publication of the book, despite banking not being their domain.
I would like to dedicate this book to my late grandmother Khalida Hassan, who passed away while the book was at the final stage. The kind of encouragement she gave me through the process of writing this book is unmatched.
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The Banker Who Crushed His Diamonds Page 16