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

At that point of time, after his return to India, Harkirat started reasoning with Ashok, whom he knew personally. Ashok was covertly in support of Harkirat because he knew Rana had played dirty. Helpless, he tried to get back to the old understanding. Ashok, who had recommended Rana to Harkirat, was trying to be the voice negotiating the deal. He was trying to broker a deal in adverse circumstances. ‘He was trying to get a rotational basis working for the CEO’s post,’ a person who knew all of them told me.

But Rana was adamant. He wanted Harkirat to become a normal investor, nothing more nothing less.

This wasn’t acceptable to Harkirat, who pulled out of the partnership in late April 2003. ‘I value my reputation above everything else,’ he said. However, Rana Kapoor, who was then the MD and CEO of Rabo India Finance and a non-executive director of the banking company, said that Harkirat had been consulted before the decision to appoint Ashok Kapur as chairman was taken. ‘Due to personal reasons, Harkirat has chosen to withdraw from the bank. His contribution to Rabo has been extremely valuable and it is indeed very sad that he is leaving us,’ he had told the press.

But Harkirat wasn’t going to take this manipulation lying down. He sued Rabobank in the London Court of International Arbitration. Harkirat was caught in a trade-off there. He had the option of going to the RBI as well. But then he thought prudently: if the RBI intervened, they would cancel the licence and Harkirat wouldn’t receive any monetary award. But in case of an international arbitration, he would get the award. So, the case was filed against Rabobank, who during the proceedings called in Rana as a witness. In 2005, the London court ruled in Harkirat’s favour. While the quantum of the award wasn’t public knowledge, people who knew Harkirat speculated that it was £25 million.

Since Rabobank was putting its weight behind Rana Kapoor and Ashok Kapur was optionless, the RBI didn’t revoke their licence. But later, in the court argument, the RBI is said to have given a letter to Harkirat stating that he was wrongfully removed and without their permission. When this was happening, Harkirat, according to the accounts of people who knew him, was being cautious of his image. ‘Had he gone to the RBI, the bank’s licence would have been revoked. A lot of muck would have come out,’ one such person told me.

Post that, Harkirat oscillated mostly between India and London, staying away from any media glare. Most people who knew him well say that they lost the touch with him by 2010. Harkirat also severed contact with Rana but continued to remain in touch with Ashok Kapur.

Back at the bank, a new arrangement was brought in. Since the initial plan was to invest Rs 120 crore (Rs 40 crore each), now they were short of funds. That is where Rabobank came to the rescue and granted both partners a loan of Rs 17 crore each, without any interest, to fill in for the deficit amount. The promoters, Rana Kapoor and Ashok Kapur, held a 52.12 per cent stake, while Rabobank held 20 per cent. Rana was the CEO and MD, while Ashok was the non-executive chairman. Ashok, who was about sixty years old by then, believed that Rana, who was fifteen years his junior, would be more energetic in the executive role.

Delayed by a year, the bank began operations in 2004. But where did the name YES Bank come from? Rana Kapoor had come up with a logic that resounded years later with another man, Erwin Singh Braich, who tried to bail out the bank. There were five names on the table: YES Bank, Mint Bank, My Bank, Gateway and Octra. In various interviews over the years, Rana Kapoor had given credit to Bharat Patel (Procter & Gamble India chairman and a YES Bank board member). ‘Yes is one of the most-spoken words in English, and it was a new-age bank. It kind of reinforced high energy,’ Rana Kapoor said in an interview to Hindustan Times.

In 2019, the then biggest suitor of YES Bank, Erwin Singh Braich, said his rationale for investing in YES Bank was simple. ‘I loved the logo, and I had my people do the due diligence very deeply,’ he said. ‘If it was called “No Bank”, I wouldn’t have been interested.’

Less than one year after the bank commenced its operations, the bank got ex-RBI deputy governor S.P. Talwar on board. With effect from 1 July 2005, YES Bank had appointed Talwar as senior adviser (corporate development). ‘This is a very significant appointment for YES Bank, as it comes at an extremely critical take-off phase. Shortly, YES Bank will be a listed entity, which assumes an extra responsibility and commitment towards all our investors and stakeholders. We are confident that with Mr Talwar’s extensive and invaluable experience, YES Bank will continuously adopt global best practices, ensuring that the organization is managed and monitored in a responsible manner to “create and share value”,’ Rana Kapoor, then donning the role of CEO and MD said on his appointment.

At that point of time, both Rana and Ashok, who didn’t know what the future had in store for them, tried to consolidate power at the bank which they now controlled. The two partners incorporated four articles in the memorandum of association (MoA) in the bank—Article 110 (b), Article 127 (b), Article 127A (a) and 127A (b)—all directed at consolidation of power by the duo.

Here are the relevant extracts of those clauses:

Article 110 (b): ‘So long as the Indian Partners hold along with any of their Affiliates directly or indirectly, at least 10 per cent of the issued and paid up share capital of the Company, the Indian Partners shall have the right to recommend the appointment of three directors collectively referred to as the “IP Representative Directors”.