The Banker Who Crushed His Diamonds by Furquan Moharkan (read novel full txt) 📕

Run on the bank starts

2020

RBI places moratorium on YES Bank, executes bailout

ED arrests Rana Kapoor

YES Bank gets new board; promoter group dropped from shareholding pattern

While this story sounds more like a history lesson, things will get interesting as we uncover what was happening behind the curtains.

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YES Bank’s business story looks more or less like an inverse variation graph—with the bank first seeing a steep growth curve and then a steep collapse curve. But the story of the control of YES Bank is a more complicated one, where its foundations were scheming, manipulations and back-stabbing—a trend that ultimately became the bank’s culture. We will talk about their business story in the next few chapters, but for now let’s focus on the battle for control over YES Bank.

The plan to start a bank was originally not Rana Kapoor’s. He was nowhere in the picture. It was banker Harkirat Singh’s idea. Who was he?

At that point in time, Harkirat was a celebrity banker. He was a banker that the current lot of powerful bankers, the ones who were somewhere in the middle of the corporate ladder, looked up to. Till 1999, Harkirat was the head of Deutsche Bank in India. He had worked in Deutsche Bank for eighteen years, having started the bank’s operations in India in 1981. He led Deutsche Bank’s first foray into venture capital with an investment in India’s first venture capital company, Indus Venture Capital India Private Limited.

Harkirat began his banking career at the Citibank training centre in Lebanon. During his long and illustrated career, he also worked with ANZ Grindlays. It was here that he made friends with Ashok Kapur. At Grindlays, Ashok served in various capacities, including general manager for institutional banking and managing director for Grindlays Merchant Bank of Nigeria. He also worked as ABN Amro’s regional manager (executive vice president) in Singapore where he was involved in expanding the bank’s network in Asia and Australia. He also worked in different business groups, including commercial and investment banking. In fact, Ashok was the first Asian to be appointed ABN Amro’s country manager for India.

When Rabobank was scouting for opportunities in India, Harkirat came to know about it. Since Harkirat knew Ashok, and Ashok was retiring from ABN Amro and could immediately take up the task, he invited Ashok to join him as a partner in this venture. Ashok and Harkirat were contemporaries who were heading two different foreign banks and had a lot of mutual respect for each other. Until this point, Harkirat did not know Rana Kapoor, who was then heading the corporate business of ANZ Grindlays.

It was Ashok who recommended that they invite Rana Kapoor to join as the third partner. ‘I accepted that suggestion only because of his very strong recommendation, as I did not know Kapoor very well nor was I fully acquainted with his experience and expertise,’ Harkirat had told Economic Times1 years later in 2013. In the same interview, Harkirat had said that he didn’t know that Ashok and Rana were related. Else, according to him, he would not have taken Rana on board.

The plan was to set up set up a non-banking financial corporation (NBFC) and ultimately a bank. An NBFC is an entity that provides certain bank-like and financial services but does not hold a banking licence. NBFCs are not subject to the banking regulations and oversight by federal and state authorities, which traditional banks adhere to. The most important difference between NBFCs and banks is that the former doesn’t take demand deposits.

The arrangement of things was simple: while Rabobank would control majority stakes in the NBFC, the three Indian partners would control majority stakes in the bank. After hectic discussions, Rabo India Finance Limited was incorporated with the Registrar of Companies in Mumbai on 5 February 1998, and a few months later commenced operations.

Rabobank held 75 per cent stake in the India entity, while the three other partners held 25 per cent each in the entity. The Indian partners had chipped in with Rs 9 crore each. From their personal pockets, they had to contribute only Rs 40 lakh each. The rest of it was the joining bonus from Rabobank. In the NBFC, all three of them were managing directors, with Harkirat usually operating from both London and India.

Many claim that the NBFC was not operating to its fullest as it was aiming at getting the bank licence. In the words of one NBFC veteran, he saw it as ‘dysfunctional’. But, in fact, the NBFC was doing pretty good business. Back then, Prime Minister Atal Bihari Vajpayee focused a lot on infrastructure. He had launched Bharat Nirman. Rabo India was minting money through short-term lendings to these projects. Rana was mainly looking after the credit growth and collection—and going by the accounts of the people who know him, he was very good at it.

Not only was Rana good at collection, he would also go to any extent to get the job done. Once at YES Bank, he was not getting repayments from one of his small-and medium-scale enterprise borrowers. The client was out of the country. When he returned, Rana sent a car to receive him at the airport. From the airport, the borrower was directly driven to Rana’s cabin on the ninth floor of Nehru Centre. There, Rana, according to a former YES Bank employee present in that meeting, using Hindi cuss words told him: ‘Tune mera paisa liya hai. Tu lautaayega kya yeh paisa, warna tujhe uthaaunga (You have borrowed my money. If you don’t return it, I will get you kidnapped).’

Rana and Rabobank India helped Tata Tea acquire Tetley, which would be India’s first leveraged buyout (LBO). An LBO is the acquisition of another company using a significant amount of borrowed money to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loans, along with the assets of the acquiring company. The