Tale of Yes Bank’s Rana Kapoor paints a frightening picture of banking sector

Years of poor regulation results in Indian Banking sector resting on terribly shaky foundations, new book on Yes Bank collapse reveals

‘The Banker who crushed his Diamonds:The Yest Bank story’ has been written  Furquan Moharkan and published by Penguin. Photo: Amazon.in

The Reserve Bank of India (RBI) delayed taking action on the rampant corruption and asset stripping that was happening in Yes Bank for at least five years, before the inevitable collapse of the bank in March 2020, according to a new book on the story of Rana Kapoor, who created and destroyed the bank.

“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,” former finance Minster P Chidambaram told Furquan Moharkan, journalist and author of the book The Banker who crushed his Diamonds:The Yest Bank story, published by Penguin last fortnight.

In fact, even at the very last stage when RBI puts its nominee on the board of Yes Bank, the nominee, deputy governor of RBI Rama Subramaniam Gandhi, okayed all decisions of the board which was fighting a do or die battle to stop the inevitable collapse. “Towards the end, whenever discussion used to take place Mr Gandhi used to be called. He was there. He would be like, yes I am aware. It was quite obvious that the RBI knew what was happening. We used to feel that the RBI was trying to see if something could emerge out of it,” a member of the Yes Bank board told the author. This board was overrun by RBI but Gandhi found his way back into the new board after takeover.

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Moharkan details how every known fraudulent method, from evergreening of loans to money laundering to round-tripping, was used by Kapoor, over the years, to create fake accounts of profitability of the bank and to cheat investors, often sending the shares of the bank to abnormally high levels.

Also read: Chargesheet filed against Yes Bank founder for receiving ₹600 cr bribe 

Kapoor would offer huge loans to companies on the verge of collapse and take back 10 per cent of the loan upfront in some cases ₹500 crores, or more, and show that amount as profit. This was among the various methods that were used to cheat investors and RBI. Kapoor ran about 170 bank accounts to siphon off kickbacks received from companies to whom he extended loans.

Further, he had about 112 shell companies in India and abroad. This is the person in whose banks lakhs of people deposited money as RBI and the government watched.
Many companies on the verge of collapse ran to Kapoor (now in ED custody) who offered them huge loans in return for kickbacks.

He ran roughshod over various regulatory warnings, kept out members of the Board who questioned him and one after another started amassing properties around the world, including hotels in New York and London and a priced bungalow in Amrita Shell gill Marg in Delhi valued at close to ₹400 crore, which came as ‘repayment’ for a loan from industrialist Gautam Thapar. In fact, over the last one decade Yes Bank was nothing but a cover for any known illegal financial activity.

The RBI was coy about taking action because of fear that the entire banking edifice would collapse, according to the author. The bailout of Yes Bank in March 2020 happened against much opposition from the State Bank of India (SBI) itself because it did not seem viable. “The RBI and the government think that the SBI is a bottomless pit .Why should we even bail-out some other entity?” a senior officer of SBI is quoted as saying.

The book paints a frightening picture of India’s corporate banking system in which corruption is rampant.The case of Chanda Kochchar of arrested former CEO ICCI Bank is a classic example. She had started corrupt practices two years into her tenure as CEO, according to the book. It is into this sector that the government is now planning to sell private sector banks including Bank of Maharastra. In fact, even the RBI does not know who are some of the major foreign investor in banks like ICICI and Axis.

Also read: More questions than answers in the Yes Bank rescue act

“In the case of Kotak Mahindra, the RBI knows who owns it. Can the government or RBI say the same for any other new generation bank? Is the ownership even Indian?” Haseeeb Drabu economist and former chairman of J&K bank asks. The author concludes the entire non-promotor run private banks PSU banks and financial institutions are in a mess. In all such banks RBI sits on the board.

In fact, the government, as Drabu says, does not know who are major share holders or part owners in many such banks. 622.66 crore shares across 18 private banks are owned by undisclosed foreign investors. “As the ultimate beneficiaries of these holdings are unknown, it can also be presumed that this undisclosed shareholding may be used as a front towards laundering money,” the author concludes.

The government sees the private banking sector as the cure for all the ills facing public banking and a whole lot of PSU banks are listed for sale in a classic case of pushing things from the frying pan into the fire. No one who reads this book or who is aware of the poor governance practices and rampant corruption in this sector will believe that such ailing PSU banks will be rescued or nursed to good health by private owners, most of whom cannot even be identified since they are hidden behind a web of shell companies in tax havens.

In the last two years itself, five major banking or financial institutions have collapsed. Thousands of investors have lost money with no hope of any returns. All under the watchful eye of the RBI and the government.

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