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

notice — a toned-down version of which was placed on the BSE as clarification. ‘Since the last capital raise, the bank has had no discussions with any domestic mutual fund houses to raise the additional capital, and therefore, the whole foundation of the article is factually incorrect,’ the bank said. However, within two days, on 26 September, the bank sent another update to the exchanges. ‘The bank has received strong interest from multiple foreign as well as domestic private equity and strategic investors for this capital raise and remains firmly on course to raising growth capital subject to the necessary approvals,’ it said.

With these two contradictory statements issued in a span of just three days, there are two permutations that would have been in place: either the bank’s management and the communications team was lying and manipulating share prices on one of the two occasions, or the article forced the bank to meet ‘multiple investors’ in just two days. It might be time for SEBI to investigate the issue.

As I was in the middle of my story on Friday, 20 September 2019, another development shook the markets. Rana Kapoor had parted with his ‘diamonds’ and sold a part of his stake. Morgan Credits, a company controlled by Rana Kapoor’s daughter, had sold 5.5 crore shares held at YES Bank for Rs 58.16 per share, in a transaction worth Rs 320 crore.

‘As has been publicly disclosed, one of the promoter entities of YES Bank sold a part of its stake yesterday. This sale was affected purely to deleverage the debt of this entity. The board of directors of YES Bank would like to state that the financial position of the bank is sound and stable, its operating performance continues to be robust and its growth plans stay firmly on track,’ the bank claimed.

But there was some insight that a senior executive at the bank told me about Ravneet Gill’s way of functioning. ‘He is only bothered about the share prices, come what may,’ the executive told me. For this purpose, Ravneet was a frequent visitor in the newsroom of a particular business channel and a particular business paper. ‘Every other morning, he used to be in these newsrooms planting positive stories,’ one person who helped him in all this told me.

But in hindsight, even if Ravneet can be alleged of oversight and judgement errors, he did it all to save the bank. His perception was that at least optics will bring in positive sentiments. Yes, I do believe that there was an error of judgement on his part, but he had limited options in a do-or-die situation. So, he probably adopted a ‘whatever it takes attitude’ to save the bank that was nearing insolvency.

In the aftermath of that story, in the next seven trading days, even as the bank was trying to say all was well, YES Bank’s shares depleted by a whopping 42 per cent. Such was the hit on YES Bank’s shares that the Indian equity market exchanges asked the bank to explain the fall. Immediately, the bank replied that it didn’t know what had caused the crash.

However, the biggest fall in the bank’s shares was on 1 October, when the shares crashed by 23 per cent. On that day, RNAM invoked a pledge and sold 10 crore shares of YES Bank for Rs 352.9 crore as part of the margin call. The shares, part of the Rs 950-crore issuance of NCDs by YES Bank promoter company Morgan Credit Private Limited (MCPL), were pledged by Rana Kapoor as security. MCPL was part of YES Bank’s promoter group that was controlled by Rana’s three daughters — Roshini, Rakhee and Radha.

A margin call is the broker’s demand that an investor deposit additional money or securities so that the account is brought up to the minimum value, known as the maintenance margin. A margin call usually means that the value of one or more of the securities held in the margin account has decreased below a certain point.

YES Bank’s management felt that this share sale, which happened close on the heels of the PMC Bank collapse, triggered the run on the bank. This is partly true. This also dented the final prospects of any new investor coming on board.

To put facts into perspective, the faith of the customers was already dented by that time. In a sustained and gradual way, in the two quarters preceding the share sale, the bank had seen its deposit base erode by 8 per cent. What this share sale did was to exasperate the customers who were already disgruntled.

The next day, as Rana Kapoor’s shareholding tanked to below 2 per cent, YES Bank did what was rarely seen in India’s corporate culture: they announced the key metrics of the financial performance of the September quarter, when otherwise a bank’s (or for that matter most companies) communications team blocks any queries from media houses on the pretext of price-sensitive information.

The bank said that this fall was primarily ‘on account of the forced sale of 10 crore equity shares (3.92 per cent of the bank’s equity share capital) triggered by an invocation of pledge on the equity shares of a large stakeholder.’ It further reported a single-digit decrease in the bank’s advance book and deposit book. However, there were a lot of stressed assets that were to be written off and the bank decided to skip mentioning it continuously.

‘These were shares pledged by our father, Rana Kapoor, to support the borrowings of MCPL, a company owned by his three daughters... we are highly dejected that our family shareholding in YES Bank was sold at such dismal prices levels,’ said a MCPL statement on 3 October, completely disregarding the fact that the bank was in a mess because of the reckless lending that had happened under their father’s watch.

There were two interesting observations in this stake sale. One was that RNAM started invoking the pledges of Rana Kapoor as soon as Anil Ambani exited from RNAM. This came a year