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

number of people there who were in a hurry to withdraw their monies. The bank’s customers were not able to conduct online transactions either. Sensing the panic, Prashant Kumar, the RBI-appointed administrator of YES Bank, said, ‘We assure the depositors that their money is safe and there is absolutely no reason to panic. Look forward to continued support from the depositors.’ Separately, in a mail to the depositors of the bank, Kumar echoed similar words. The bank’s digital platform, which was its cherished asset, came crumbling down. Flipkart-owned payment service PhonePe was among the major services that suffered a major outage and went down.

Other companies that use YES Bank for online payments include Swiggy, Microsoft’s Kaizala, and travel firms MakeMyTrip and Cleartrip, according to data sourced from NPCI. PhonePe has only one bank as its Payment Services Provider (PSP). Google Pay has four PSPs, both Truecaller and MakeMyTrip have two PSPs each. All the other third-party app providers for unified payments interface (UPI) are dependent on a single acquirer bank to process their UPI payments, according to NPCI data. Paytm Payments Bank also restricted transaction settlements, including UPI, into YES Bank accounts to safeguard their users’ money.

By 9.15 a.m, as the trading on the exchanges opened, YES Bank stocks were hammered by the investors. In the intra-day trade, the bank’s scrips tanked by 85 per cent to a paltry Rs 5.50 per share.

Remember, we had discussed the increasing short position in the bank? Well, they again come into the picture here. They started short covering — the buying-in of stocks that have been sold short. Since there is there is no mandated limit on how long a short position may be held, imagine an short seller who would have held short position since a year? They had sold a share for Rs 235 a piece, which they ultimately paid Rs 5.50 for after the bank failed — a profit of about 4000 per cent in a year!

As a result of short covering, in the latter part of the day, the shares of the bank pared the losses to close with 56.4 per cent loss at Rs 16.20 per scrip. However, the investors of the bank lost Rs 3000 crore in a day. By noon, all eyes were on Rana Kapoor. Everyone wanted to approach him. I WhatsApped him. In his typical calm demeanour, he washed his hands off the fiasco. ‘I have been out of the bank for a very long time. So, I don’t know (why the RBI did this),’ he said.

As YES Bank plunged into crisis, the government rushed into firefighting mode. The finance minister held a press conference at 4 p.m. She tried assuring the depositors that the government was committed to safeguarding their money and the RBI, which superseded the lender’s board, said all its employees would continue their services with the same salary for at least a year. The RBI said a solution to revive the bank would be put in place within a month.

‘The governance issues in YES Bank were of a serious nature. There was wrong asset classification and risky credit-issuing habits. The RBI had been asked to assess the causes and identify the role played by individuals,’ Finance Minister Nirmala Sitharaman told the press, less than twenty-four hours after the central bank imposed withdrawal restrictions of Rs 50,000 per person in the one month. Separately, the RBI came out with a restructuring plan for the embattled bank, according to which India’s largest lender, State Bank of India, which showed its readiness to invest in YES Bank, would buy 49 per cent stake in the bank and not be allowed to reduce its holding below 26 per cent for three years. ‘The employees will continue their services with the same salary and terms as are already applicable for at least a year. The board of directors of the reconstructed bank will, however, have the freedom to discontinue the services of the key managerial personnel,’ the plan said, much to the relief of the bank’s employees.

It said a new board would be constituted. The SBI would have two nominee directors on the board and the RBI may appoint additional directors. The board members were to remain in office for a period of one year, or till an alternate board was constituted by YES Bank. The plan also said that all offices and branches of YES Bank would continue to function in the same manner and place. The reconstructed YES Bank could also open new offices and branches, or close down existing offices or branches, in accordance with the extant policy of the central bank.

This was a one-of-its-king bailout in India. It was not the first for sure. For Indian policymakers, a bank going bankrupt is considered a cardinal sin. If a bank becomes insolvent, the depositors are hit hard — many of whom are retail depositors. Retail shareholders lose money, too. This is what worries the government: it would obviously impact their political capital.

Global Trust Bank (India) had been involved in the stock market scam of 2001, which stockbroker Ketan Parekh ran. It had lent heavily to individuals speculating in the stock market; when the market crashed the bank suffered extensive losses. On examining the books of the bank, the RBI had found out that its net worth had turned negative. The bank tried getting foreign investors on board to re-capitalize itself, but the RBI was reluctant to permit private investors to restructure the bank. After two years, in 2004, the Oriental Bank of Commerce, which right now is facing a fund crunch itself, bailed it out. GTB had lost its identity. In 2010, Bank of Rajasthan was bailed out when it was merged with ICICI Bank. It, too, had lost its identity.

But in the case of YES Bank, the deal was unique. The bank was bailed out close to insolvency. But it had retained its identity. This was primarily because in the previous two cases, the bailed-out entity was not a big brand.