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

In Rana’s case, he didn’t know where to stop. And he was continuing with the risks that he was taking when the bank was at a nascent stage. The simple rule in the finance industry is that the more you grow, the stronger your assessment has to be.

But there were hardly any tough questions asked to the bank. Rather, in most of the media outlets, there were paeans sung about it. Did they not know what was happening at the bank? Well, probably they did. I know two journalists in two prominent business publications who confessed that their stories were killed by their respective editors. Why did it happen? The answer lies in Rana’s knack for handling people. In 2017, YES Bank, led by Rana, signed a three-year deal with a prominent media house for Rs 50 crore and became a sponsor at their annual event. ‘He wanted publicity. They wanted money. It worked for both of them,’ a person who worked on that deal said. But how was the entire media pliable? Probably not. Whenever a journalist came up with a critical story on the bank, the tools of defamation and legal notice were used against them, as it was in my case.

So, in essence, Rana and YES Bank used the carrot-and-stick approach to keep critics at bay, while they lent recklessly to stressed businesses—for which a large chunk of the country, from investors to depositors, had to pay dearly later.

We will talk about the media’s role later in this book, but let’s first complete the story of YES Bank.

ENTER RBI, EXIT RANA

After Raghuram Rajan’s abrupt exit from the RBI, the bank was led by his go-to man Urjit Patel—a hawk who most bankers and most financial market participants in India feared. The fear was based on simple grounds: Patel knew how to follow the rule book and implement it strictly.

To give you an idea about how people feared Patel, I have a personal anecdote. It was 8 December 2018, a Saturday. I was supposed to travel to Mysuru overnight for a personal trip. Since my reporting manager was also on leave, the chief editor wanted me to be in office on Monday. ‘I have a feeling that something is going to happen on that day,’ he told me.

I left from Mysuru on Monday noon, 10 December. As luck would have it, the brakes of my car failed mid-way. I somehow got them repaired temporarily and managed to reach Bengaluru. When I was just 15 minutes away from the office, I got a call from a senior RBI official. ‘A big announcement is likely soon. He (Patel) is likely to step down,’ the official said.

Immediately after Patel’s exit at 5 p.m. on 10 December, as I scrambled for related stories, many experts expected a bloodbath in the markets. There was a perception that if the ruling BJP lost the elections in five key states, the markets would collapse.

The very next day, on 11 December, the BJP—a darling of the stock markets—was routed in the assembly elections in three major states.

Contrary to expectations, the markets behaved differently. In the next seven trading sessions following Patel’s exit, the markets gained over 4 per cent. The BSE Sensex, in seven trading sessions post his exit, gained a whopping 1524 points or 4.36 per cent. On the other hand, the broader index, NSE’s Nifty-50 had an inter-market arbitrage over the Sensex, which gained 30 basis points more than the Sensex. This behaviour of the Indian markets is best described as cynical. ‘Patel was seen as a very strict person by the markets. What you witnessed in the markets was just a celebration of his exit. That is why you saw bond yield going down as well,’ the CEO of a big brokerage house told me at that point.

This explains the impact of Urjit Patel on the Indian financial system, which is probably why I have concluded that Patel was the best thing that could happen to the Indian financial system. Patel is very important in the YES Bank story. During his tenure, the heads of three private banks were forced to step down due to alleged governance lapses, and one of them was Rana Kapoor.

By the end of 2017, Rana, unaware of the RBI’s eye on him, thought he was invincible. There is a concept of proxy advisory firms that provide services to shareholders to vote their shares at shareholder meetings of, usually, quoted companies. This is mostly availed by foreign portfolio investors. In early 2016, the BSE was going for its IPO. So, it was offloading 30 per cent of its stake in one such firm: IiAS. YES Bank bought a 5 per cent stake in it.

But how could this have helped YES Bank? Let me give tell you. In 2018, Institutional Shareholder Services LC (ISS), a proxy advisory firm, had asked HDFC shareholders to vote against Deepak Parekh’s reappointment. The result was that on 31 July 2018, at the annual general meeting, Parekh got just 77.3 per cent votes as against the minimum required 75 per cent. Foreign shareholders voted as a block through proxy advisers based on ISS’s suggestion.

In the case of YES Bank, more than 40 per cent of the shareholding was held by foreign portfolio investments (FPIs) at that point in time (as shown in the figure below). Rana was trying to leverage this by influencing the proxy advisers through ownership. In fact, feelers were sent through a senior member of the then marketing and communications department for YES Bank, and one of Rana’s close aides (who is now based in London). He was trying to break ice by getting the IiAS on board for the bank’s magazine—CFO Insights. The IiAS however paid no heed to him and Rana’s plans failed.

In 2017, as YES Bank’s loan book was outgrowing the industry margin—mostly in wholesale lending—it alerted people within