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

after the YES Bank co-founder had boastfully declared that he would never sell his share in YES Bank and that ‘diamonds are forever’. The second was the fact that it expedited the run on the bank as spooked depositors played safe. By November, Rana Kapoor had exited almost all his shareholding in the bank after another holding company YES Capital (India) Pvt. Ltd — also controlled by his family — sold 2.04 crore shares worth Rs 142.75 crore.

As Rana and prudent institutional investors exited the bank, retail investors — one of the most vulnerable lot in the Indian equity markets — picked up these supposed ‘diamonds’ and controlled almost half of the bank’s ownership till it collapsed on 5 March. At the end of it all, Rana held a paltry 900 shares in YES Bank, which he happens to still hold through YES Capital.

By this time, the qualified institutional investors who had parked their bets on the bank just one month earlier were feeling uncomfortable. And their discomfort was justified. In a span of one and a half months, they had incurred losses of over 65 per cent. They had invested Rs 1930 crore on 14 August in the bank, and had they sold their shares by 1 October they would have collected just Rs 671 crore for that amount. Though the bank, all this while, including in the legal notice issued to me, portrayed these qualified institutional investors as a validation of their stand, the story on the other end was different. At that point in time, I spoke to three different people: one of them had brokered the deal and the other two had invested their monies in YES Bank. Their consensus was that they were ruing the investment made in the bank. One of those fund managers told me, ‘What are we even supposed to do? We have lost our money. This is now taking a toll on our books as well.’

However, even as Ravneet initially tried to come clean on the bank’s financials, the probable murkier side was seen in the months that followed, something we will dwell upon in the next chapter. Although, unlike Rana Kapoor, there were no concerns of conduit and financial impropriety.

STRETCHING IT TOO LONG

As the bank’s shareholders were witnessing a beating in the exchanges, the once ‘diamonds’ were being sold at throwaway prices and the bank started to lose the confidence of its depositors.

But there was a catch. The bank had huge bad loans to write off and the investors had lost all confidence in the bank and were not ready to bet on it. The only thing that could have helped the bank sail through was high level of deposits.

But then things were not to be so. By October 2019, the bank’s deposit base had started eroding heavily. I was having a conversation with a senior bank executive, who is still with the bank, in early December. ‘The situation is getting worse. The deposit base has eroded by Rs 38,000 crore in two months,’ the official said. Of this, Rs 20,000 crore was by the retail depositors — funds deposited using various financial products (current accounts, sight deposits) by physical persons (as opposed to corporates or other legal entities) that can be withdrawn arbitrarily with little or no penalty. The bank, in its internal meetings, was hopeful that the year-end payout of bonuses to employees would help it shore up its deposit base at the end of the quarter, which could then be used to make the books look good.

On 7 October, it was reported that the bank was in talks with global tech giant Microsoft to sell 15 per cent stake in a bid to raise funds. The news report was quoting sources. When the exchanges sought a clarification from YES Bank, the bank gave vague, open-ended answers. ‘The bank is not aware of the source, which resulted in the abovementioned news item, and as a matter of policy the bank would not like to comment on such article,’ it said in an exchange filing, neither confirming nor denying the report. The idea behind the bank not denying it was said to be a bid to gain credibility. ‘We thought it would have helped us. So, we decided not to deny this development,’ a member of the erstwhile board at YES Bank said.

Again, on 16 October, there was a news report stating that Indian billionaires Sunil Mittal and Sunil Munjal were interested in YES Bank. And when the exchanges sought a clarification, guess what the bank’s reply was? The same template as its previous reply. These two episodes happened in a span of ten days, and then stopped. On the first occasion, the bank’s shares surged by 8 per cent in one day, while on the second occasion, they surged by an astounding 25 per cent in two days.

On 31 October, around 11 a.m., Ravneet Gill called up the bank’s board, informing them that the bank had received a binding term sheet from ‘global investors’. At a time when no one was willing to touch the bank, it issued a statement that it had received a fund-infusion offer worth $1.28 billion (almost Rs 10,000 crore). ‘In this regard, and under Regulation 30 of SEBI LODR, the bank would like to inform that it has now received a binding offer from a global investor for an investment of US$ 1.2 billion in the bank through fresh issuance of equity shares, subject to regulatory approvals/conditions as well as bank’s board and shareholders approvals,’ the bank said in its statement.

Note that the key word here was one global investor, not a group of investors. Based on the day before’s market price, an investment of $1.2 billion through the issuance of fresh equity would mean that the investor would end up holding about 33 per cent stake in the bank. Under normal circumstances, RBI rules restrict a sole investor from holding more than 10 per cent in a private