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

Park, which invested about Rs 2250 crore in the bank, was interested in investing in the bank under the previous management as well. The other domestic institutions that invested as anchors included HDFC Life Insurance, Bajaj Allianz Life Insurance, ICICI Lombard General Insurance, Reliance General Insurance, RBL Bank Limited, Edelweiss Alternative Asset Advisors, Elara India Opportunities Fund, Hinduja Leyland Finance and ECL Finance. The non-anchor institutional investors’ portion was oversubscribed 1.90 times, with the bank being able to raise Rs 6281.82 crore from them.

As per market sources, a total of twenty-seven institutions such as SBI, LIC, IIFL, Edelweiss, Bajaj Allianz, HDFC Life, Punjab National Bank, HDFC Mutual Funds, Union Bank, Bajaj Holdings, Avendus Wealth Management, IFFCO Tokio General Insurance, Norges fund, Schonfled, Millennium Management Global, Aurigin Capital, Exodus Capital, Wellington Capital, Jane Street Capital, Segantii Capital Management Ltd and D.E. Shaw & Co. bid for the non-anchor QIB portion. However, the retail portion and the employee reserved portion of the FPO was heavily oversubscribed. Retailers, who were the worst hit by the near-collapse of YES Bank, subscribed to just 47 per cent of the shares reserved for them. On the other hand, the bank’s employees subscribed to just 33 per cent of the shares reserved for them.

The non-subscribed portion of the FPO, as per it’s underwriting agreement with the bank, was to be allotted to SBI Capital Markets, who had agreed to underwrite Rs 3000 crore worth of shares at a price equal to the lowest end of the price band.

CONCLUSION

YES Bank was brought back from the brink, but the way the entire operation was conducted raises a lot of general and a few specific questions. Bailouts aren’t new to the Indian financial system — the recapitalization of public sector banks is nothing but a form of bailing these banks out of a financial mess and the crunch of capital. Going back in to the annals of history, by the mid-1980s, operational and allocative inefficiencies caused by the distorted market mechanism led to a serious deterioration in the profitability of public sector banks, according to volume IV of RBI History.

The central government was aware of this and, in 1985, former finance minister V.P. Singh, while delivering an address at the golden jubilee celebrations of the RBI, said, ‘The time has come for the banking system to embark on a phase of consolidation, in which improvement in operational efficiency must be the key concern.’ It became necessary to enhance the profitability of public sector banks so as to ensure the stability of the financial system. The restructuring measures for these banks included improving profitability, debt recovery, customer service and streamlining the payment and settlement mechanisms, besides continuing efforts to update the legal system. The major policy changes were the introduction of treasury bills, the creation of money markets and the rationalization and partial deregulation of interest rates.

However, this was to do with public sector banks. They are the pillars of the economy and the pillars of trust of the financial system. That is why former RBI governor Urjit Patel had also been supportive of the periodic bailouts of the public sector banks. ‘It is possible that episodic high-risk perceptions for the banking and financial sector as a whole will persist. Market perception is that the principal owner is one step behind regarding capital infusion into its banks due to fiscal constraints,’ Patel had said in Stanford University on 3 June 2019.

However, that said, in many cases, the political lending and the corruption by various level of management at the public sector banks has historically led to financial woes. The $2 billion Nirav Modi scam wouldn’t have taken place had the employees of Punjab National Bank not collaborated with the fraudsters. In such cases, the bailouts of public sector banks should be accompanied by a detailed investigation of the role of the bank’s employees. But why should the government or public banks be saving the private banks, especially when the shenanigans of the management have led to the failure of the institution?

‘In my view, some of these collapses have been idiosyncratic, specific governance failures. Those will always happen and will have to be dealt with,’ former deputy governor of RBI Viral V. Acharya once told me during an interview, when I asked him about the recent banking failures. Indeed, he is right. The management plays an important role in the private sector. In the financial sector, the right management will create an HDFC Bank or a Kotak Mahindra Bank, while bad management may end up creating a YES Bank or a DHFL. It is extremely important that the RBI focuses on management and their governance. But it has hardly done that, at least not till the time the mess got real.

While the government’s bailout may save the institutions, what happens to the depositors and the investors in these cases? Imagine a retail investor who would have invested Rs 1 lakh in YES Bank on 3 September 2019, when the bank’s inability to raise funds was clearly visible but no one had raised any red flags? His investment would be worth just Rs 24,000 after one year, causing him to lose over Rs 75,000. What is such a retail investor’s crime? He believed in the assurances doled out by the bank’s communication team, or he believed that the regulators would have raised red flags if the bank was crashing? Who would be the fall guy in this case? Would it be Rana Kapoor? The problem in India is very deep-rooted: financial crimes are usually taken very lightly. If Bob (imaginary name) kills one person in India, he has more chances of getting punished than a situation where he destroys the livelihoods of millions of people. And that is where, we, as a country need a psychological modification.

The case against Rana Kapoor will go on for years. People will forget about it with time. Rana Kapoor may fade into the background, having hardly paid for the damage he has done