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

But is the RBI doing it? Since the new governor, Shaktikanta Das, an ex-IAS officer took over, the central bank has reduced the key repo rate by 225 basis points — in thirteen months till June 2020. The repo rate a key determinant of actual interest rates in country.

This is not it. The central bank has been pushing banks to lend more at a time when the banks are risk-averse due to concerns over the deteriorating asset quality standards. The logic behind it is that more lending will propel more growth. But at the same time, it will cause inflation, because people will have more money in hand. Historically, the successive governments and the RBI have been at loggerheads over the issue. While the RBI tries to make sure that inflation is under control, the government wants more growth to propel its political prospects. But with Shaktikanta Das coming in, the RBI and the government seem to be in synchronization over the issue.

In October 2019, the central bank made it mandatory for banks to link at least on loan products to the external benchmark. So basically, the banks now must have one product where the interest rate is linked to either the repo rate, the interest rate over the government bonds or treasury bills. The spread over this has been left to the discretion of the banks. This, in a way, is pushing banks to lend more, but it can come at the cost of credit risk.

‘It is quite evident that the government was—and is—pushing lending (while denying it) in an atmosphere of an economic slowdown where most businesses are de-leveraging and reducing their debts. The casualty is proper oversight. Sometimes, competing objectives can become conflicting objectives. In the long run, this will be detrimental to the stability of the financial system. Lending and recovery are activities that will closely mirror the level of economic activity in the country. In a slowdown, it will be difficult to lend more, or to recover more. Any attempt by the government to interfere with market-driven activity of banks will indeed be detrimental to the system,’ Chidambaram told me.

Former RBI deputy governor Viral V. Acharya, in one of his interviews, told me that these collapses have been idiosyncratic, specific governance failures. He further suggested: ‘We have to ensure that our financial sector is well capitalized through stress tests. Secondly, the RBI has to increase its supervisory cadre, along with modernizing it in line with global best practices—and there was a blueprint for it left behind when I quit the RBI.’

Meanwhile, back at YES Bank, an interesting development took place after the SBI takeover. On 29 April 2020, the new YES Bank CEO, Prashant Kumar, wrote to SEBI wanting to drop the promoter group from the shareholding structure on the board. At that time, Rana Kapoor and his family owned just 900 shares while Madhu Kapur and her family owned almost 17.79 crore shares at the bank (1.42 per cent) of the bank. Despite Rana’s shareholding coming down to 0 per cent, and in league with retail shareholders, his name still cast a shadow over the future of YES Bank. After the RBI bailout, YES Bank still plans to raise almost $2 billion (Rs 15,000 crore). But there is a problem. When potential investors see Rana Kapoor’s name in the promoter group, despite him having paltry shares at the bank, they get scared. Hence, the bank has had to contact Madhu Kapur, so that she gives her nod to reclassify herself as the public shareholder of the bank. Hence, to get Rana’s name struck off, the bank has had to drop the promoter group from their shareholding pattern.

‘The bank is not getting any support from its promoters, promoter group and group companies, and the situation is hostile. This causes serious prejudice to the bank from undertaking any fund raise, as the eligibility criteria and disclosure requirements associated with any mode of fund raise requires various information and confirmations from its promoters, promoter group and group companies,’ the SEBI letter to the bank, dated 9 June 2020, said, clearly underlining the primary motive behind the move.

The move paid off. The bank saw its deposit base expand for the first time in quarter that ended in June 2020, hinting at a semblance of confidence of customers after an SBI-led bailout.

At the end of June 2020, the deposit base of YES Bank stood at Rs 1.17 lakh crore, from Rs 1.05 lakh crore three months ago—a jump of Rs 11,996 crore (11.3 per cent). During the previous financial year, the deposit base of the bank had more than halved as customers were losing confidence in the bank.

The deposits had grown primarily because of deposit inflow from the wholesale banking side. The corporate deposits grew by 25 per cent during the quarter to Rs 48,000 crore, from Rs 38,300 crore. However, CASA accounts remained more or less flat for the bank.

The bank also went for a further public offer (FPO) in July 2020. The FPO by the lender, on 17 July, has managed to sail through on its last day, even as the offer for sale was undersubscribed.

The bank was able to raise Rs 14,266.97 crore through the capital-raising drive.

Of the 1251.51 crore shares that were offered for sale in the price band of Rs 12–Rs 13 per share by the bank, 1189.41 shares were subscribed. The subscription was mainly driven by the qualified institutional buyers (QIBs) and anchor investors. Sans anchor investors, the bank’s share subscription stood two percentage points lower at 93 per cent.

On 14 July, the bank had raised Rs 4098 crore from fourteen anchors at Rs 12 per share, with 341.54 crore shares fully subscribed. The anchor investors included US-based stressed asset fund Tilden Park Capital via Bay Tree India Holdings LLC; Singapore-based fund management company Amansa Capital and UK-based fund management company Jupiter Funds. Collectively, these three foreign investors came together to acquire 75 per cent of the shares offered to the anchors.

Interestingly, Tilden