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

out a letter to the then Department of Economic Affairs (DEA) secretary, alleging that the bank was staring at incremental bad loans worth Rs 45,000 crore in the next eighteen months based on an assessment of IDFC Securities. A report compiled by the brokerage was also shared with the DEA secretary. Despite this, on 24 January, a senior finance ministry official quipped in an off-the-record conversation that ‘YES Bank woes were just journalistic imagination. The government didn’t see any problems.’

But then there is a problem in how the government officials see things, and how the markets see it. Markets want extraordinary solutions in extraordinary situations, but the RBI wants to follow the process. ‘We have to give enough number of chances to the bank and follow procedures. We can’t interfere into a bank’s operations like that,’ a former RBI official told me.

Section 36ACA of the Banking Regulation Act lays the grounds for the RBI seizing control of the bank. It states: ‘Where the Reserve Bank is satisfied, in consultation with the Central Government, that in the public interest or for preventing the affairs of any banking company being conducted in a manner detrimental to the interest of the depositors or any banking company or for securing the proper management of any banking company, it is necessary so to do, the Reserve Bank may, for reasons to be recorded in writing, by order, supersede the Board of Directors of such banking company for a period not exceeding six months as may be specified in the order.’

The takeaway here is that the RBI intervenes when it is satisfied that it needs to take such action, which in most cases is dependent on subjective assessment. In all this, the decision-making gets caught in the red tape of babudom.

The ‘RBI is both the central bank and the regulator of scheduled banks. I have long felt that sometimes this dual role created a conflict. The answer is not to take away the role of regulator from the RBI because that will create a new set of problems. In such a peculiar situation, it is easy to find faults with the RBI and say that it acted too late or too quickly. On the facts of the YES Bank case, it appears to me that the RBI should have noticed that the total loan book was growing by leaps and bounds every year since 2014. That should have rung alarm bells. If the RBI, as regulator, had noticed that and acted earlier, no one could have found fault with it,’ P. Chidambaram told me.

It was on the same day that State Bank of India chairman Rajnish Kumar made a reassuring statement about YES Bank. He said that the bank ‘will not be allowed to fail’ as it won’t be good for India’s economy. The head of India’s biggest lender said he was certain ‘some solutions will emerge’ to steady YES Bank. By this time, the RBI was coming up with a plan of action. On 17 December, at a conclave organized by Business Standard, two top bankers of India — Rajnish Kumar of SBI and Amitabh Chaudhary of Axis Bank — batted for Uday Kotak as the best suitor for YES Bank. Sources, back then, told me that it was done on the behest of the RBI, which was trying to send out feelers to the same effect. On 27 December, Arun Nandlal Agarwal, a shareholder in the bank, had written two letters to the RBI governor alleging that the capital raise plan of YES Bank was just a sham.

While all of this was happening, another bombshell was dropped on 14 January 2020. An Indian billionaire, who was to face investigations soon, had escaped from India. Behold, almost everyone knew that Rana Kapoor had left the country. I called up my sources in the central bank and the reply was: ‘It is an open secret now (that Rana Kapoor has escaped).’

I, somewhere, felt that it was the story of a lifetime. For me, everything seemed to connect at that point in time: Rana Kapoor had sold his stake in YES Bank and had gone abroad. But there was a legal hurdle in the story: Rana Kapoor, at that time, had no cases filed against him, so we couldn’t call him an absconder. I reached out to YES Bank where, a year back, not even a pin used to drop without his permission. The bank, fearing the worst, was quick to distance itself from Rana Kapoor, an analysis which was vetted by many market players.

But where was Rana Kapoor? Yes, he was in London.

On 15 January, I got in touch with Rana Kapoor. In his classic style, Rana was courting questions and we had an amicable conversation.

‘Hello, Mr Kapoor! Hope you are doing good! Three sources in the know have confirmed to me that you have escaped from India after selling the shares of YES Bank. This comes at a time when the bank is staring at a bleak future. Can I have your comments?’ I asked him.

‘Most inaccurate,’ he replied.

‘You are in India?’

‘I am on a short trip overseas to visit my newly born grand daughter.’

I didn’t relent. It was probably because of his image, during his time at YES Bank, which I was fully aware of. ‘When will you be back?’

‘By Republic Day,’ he replied promptly.

As I thanked him, he courteously replied: ‘Thanks for your valued understanding.’ I realized that he had an idea about the rumours on the grapevine in India.

I wasn’t willing to give up without delving further into what was happening. So, since I felt that Rana Kapoor might be guarded in front of me, I asked my colleague at Deccan Herald, Samiksha Goel, to check on him by 27 January. When she got in touch with him, it was confirmed that he was back in India, which was something many weren’t ready to believe even after the fall of YES Bank. I remember that on 6 March 2020, a journalist friend