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

The finance minister said that the RBI was assessing the causes and identifying the role of individuals in the YES Bank fiasco, while also blaming the mess on previous governments. This was the same finance minister, who, in Bengaluru, a month back wasn’t willing to do anything about this issue. When I had asked her about the government’s role in the presence of all her secretaries, she had put the ball in the RBI’s court. But, by that time, the whistle-blower’s’ letters had been sent to a finance ministry official, and in a 6 March presser claimed those letters to be the grounds for investigating the bank.

Now, it seemed, the case was closed for Rana Kapoor. But Rana being the person that he was wasn’t going to let go easily. Around 4.30 p.m. on 6 March, he met an industrialist at the latter’s office, trying to negotiate his rescue. The meeting was arranged by the brother of the industrialist to whom Rana had allegedly been generous in granting loans without proper documentation and risk assessment. However, the industrialist turned him down and Rana left his office after a ten-minute meeting. At 5.30 p.m., the industrialist also called it a day and left his office.

But there was more to come. Late at night, ED officials swooped down on Rana Kapoor’s home and started a search. This continued till 12 a.m. on 7 March. As the ED found the documents about the malpractices under Rana’s tenure at YES Bank, there were selective leaks about those documents.

Around 12.30 a.m., Rana Kapoor was brought to the ED office in Mumbai for questioning. The long session of questioning continued for almost fifteen hours, after which Rana Kapoor was arrested. Here was a banker, who, fifteen months back was rubbing shoulders with the who’s who of India. The ED was also supposed to record statements of Rana’s three daughters in connection with the DHFL loan fraud — a company where the brazenness was comparable to Rana Kapoor’s way of functioning.

But despite the fact that they were being investigated for being at the centre of India’s biggest banking failure, the Kapoor family didn’t give in. Around 5 p.m. on 8 March, Roshini Kapoor was stopped at the Mumbai international airport while boarding a flight to London. A lookout notice had been issued against her, as she was to be questioned in the DHFL loan fraud. Roshini was later questioned by the ED on 11 March — three days after she tried to escape from India. We will discuss the ED’s investigations in the next chapter, but for now let’s shift our focus back on the bank.

A day after the finance minister’s presser, the SBI chairman also addressed the media. This was on 7 March, a Saturday. At the press conference, he famously confessed that even his nephew had an account at YES Bank. SBI chairman Rajnish Kumar said that their plan would be ready by Monday and submitted to the RBI, as the bank’s legal team was working overnight to execute the plan. The SBI said that it was looking at a minimum initial investment of around Rs 2450 crore. ‘We may come with Rs 2500 crore initially and our investment could go up to Rs 10,000 crore in the next three-year period, which is the minimum lock-in period,’ he said.

By next Friday, the restructuring plan was ready. The SBI would infuse Rs 7250 crore into the ailing YES Bank to pick up 49 per cent equity as part of the RBI-mandated bailout plan. On 13 March 2020, the Union cabinet approved the plan. Hours after the plan was approved, a gamut of other financial institutions joined the bandwagon to bailout YES Bank: ICICI Bank and HDFC Ltd committed to investing Rs 1000 crore, Kotak Mahindra Bank committed Rs 500 crore and Axis Bank committed Rs 600 crore.

Ironically, Axis Bank, about fifteen months back, was in a similar situation with its long-serving CEO Shikha Sharma being ousted by the RBI due to massive deterioration in asset quality. She was succeeded by Amitabh Chaudhary, who unlike Ravneet Gill’s media blitzkrieg, decided to stay put in the board room rather than the newsroom. The result was that one year later Axis Bank was bailing out YES Bank.

For private investors, there was to be a three-year lock-in period on 75 per cent of their investments in YES Bank. However, the lock-in period for the SBI was to be only for the 26 per cent of the shareholding. The authorized capital of the lender had been increased to Rs 6200 crore from Rs 1100 crore.

Also, according to the initial scheme, AT1 bonds of YES Bank, worth Rs 8415 crore, were written down completely, for which bondholders went to court. AT1 bonds are issued by banks to shore up capital and are a form of debt capital. These bonds are perpetual in nature and pay high coupons or interest rates.

However, the final scheme was silent on their status, but the bank’s interpretation of their legal status brought the write-down into effect, causing many retail investors to lose money. Some of these investors were retired individuals who had parked a sizeable chunk of their life savings in these bonds at the behest of relationship managers from the bank in 2017. The case in this regard is ongoing in the Bombay High Court.

The restructuring plan also led to a further churning in YES Bank’s ownership (explained in Figure 1 below), which over the past one year had become very fluid, as we saw in the previous chapters.

Figure 1:

Source: Company filings

Retail investors now owned just 12.77 per cent stake in the bank, while the financial institutions that had bailed it out owned one-third. The SBI alone had replaced all the retail shareholders combined with a stake amounting to 48.21 per cent.

The silver lining for the bank was the appointment of Sunil Mehta as