Abhishek Bharadwaj, a 28-year-old Chartered Accountant, says RBI may appear to be a saviour of Yes Bank but the debacle primarily happened under its watch
I work as a Chartered Accountant and I have
been taught that it is always better to spread your finances/investments rather
than keep all the eggs in one basket. I opened a bank account in Yes Bank only
last year after a friend’s recommendation. However, being aware of the
financial trends in the country I didn’t close down my accounts in other banks.
Now, even though the crisis is over, thank to RBI intervention, I have to admit that I had sleepless nights when I, around a fortnight ago, the news broke that RBI had imposed a moratorium on Yes Bank. We were anxious as we felt that it would extend for long. Mercifully, it was removed on March 18.
Being an accounts professional, I promptly changed accounts to make payments as soon as I realised that the UPI (Unified Payment Interface) was creating problems. But I wonder about the others who were not so fortunate and were stuck with just one bank account. What if someone had an emergency in their homes? Back then, nobody knew when the matter would be sorted.
The RBI has strict guidelines and policies in place when it comes to the safety of the depositors’ money. However, the execution of these policies is getting lax with each passing day. More and more banks (and their owners) think they can get away with financial irregularities. So far (at least as far back as I can remember) it hasn’t happened that a bank went bankrupt. Banks facing losses and NPA (non-performing assets) are either merged or taken over, and the money of at least small investors is kept safe.
It is commendable that the RBI directed
many banks to help in the resuscitation of Yes Bank. Still I wonder what the
authorities were doing since last year when rumours first started floating
about Yes Bank. It is a failure on part of both the RBI as well as the
government. Such things don’t happen in a day.
Back in 2016 when demonetisation had taken
place, it was clear that banking decisions were not taken keeping all aspects
in mind. I wasn’t in favour of it back then. Similarly, I feel even now it is
the ordinary people who suffer (or at least start panicking) when it comes to
decisions related to the banking sector. Every one might have a bank account
these days, but not everyone is financially literate, so government should take
care to soothe people in times of crisis.
The recent debacle of the Indian private sector bank,
Yes Bank, whose board was suspended and superseded by the Reserve Bank of India
(RBI), once again brings into sharp focus the extent and depth to which crony
capitalism continues to prevail in the country’s economy.
Yes Bank was founded in 2004 by Rana Kapoor and his brother-in-law, the late Ashok Kapur. Early this month, the Central Bureau of Investigation (CBI), registered a criminal case against Kapoor, who was the CEO of Yes Bank; Dewan Housing Finance Ltd. (DHFL), a non-banking financial services company; and its promoter, Kapil Wadhawan. The CBI charged them with criminal conspiracy, cheating and corruption under the Indian Penal Code and the Prevention of Corruption Act.
The allegations are that between April and June 2018, Yes Bank subscribed or invested Rs 3700 crores in DHFL’s short-term debentures. This financial assistance subsequently turned into non-performing assets as the bank was unable to recover the funds. More seriously, the allegations are that in lieu of the amount extended to DHFL, a company, Do it Urban Ventures, promoted by Kapoor’s three daughters, and received kickbacks in the form of loans amounting to around Rs 600 crores. In other words, the CBI alleges that Kapoor and DHFL entered into a conspiratorial quid pro quo: DHFL got the assistance (that have now turned into bad loans) and he and his family benefited from the kickbacks.
Rana Kapoor in custody of Enforcement Directorate
The agency has alleged that Rana Kapoor extended
financial assistance to DHFL to get substantial undue benefit for himself and
his family members via companies held by Kapoor and his family. On March 5,
India’s central bank, the Reserve Bank of India, announced that it had
suspended and superseded the board of Yes Bank. Customers were prevented from
withdrawing more than Rs 50000 from their accounts and rating agencies
downgraded the bank’s core bonds.
Yes Bank’s debacle turns the focus sharply on the
continued prevalence of crony capitalism in India’s economy: an unholy nexus
between banks, financial institutions (FIs), and business enterprises. Banks
and FIs—and not only privately owned ones—in India are known to have cosy
relationships with promoters of large and medium sized Indian companies and
quid pro quo arrangements of the sort that Kapoor and Yes Bank are accused of
are not uncommon. Rather, it is quite the opposite. Examples of misuse of bank
funds are galore in the Indian economy.
One high-profile case is that of liquor baron Vijay Mallya who is currently in the UK while the Indian government is trying to get him extradited so that he can face investigation into charges levelled against him. Mallya is accused of misusing around Rs 9,000 crore (US$1.3 billion), which are loans that his companies, including a now-defunct airline that he started, took from 17 Indian banks. The allegations are that Mallya siphoned off these funds to 40 other companies that he controls around the world.
In another headline-grabbing case in 2018, the CBI
began an investigation into Nirav Modi, a high-profile Indian jeweller, on
allegations that he and his partners defrauded the Punjab National Bank of Rs
28,000 crore, which he is alleged to have siphoned overseas by fraudulently
obtaining letters of undertaking for making payments to overseas suppliers.
Modi is absconding and is believed to be in the US even as the Interpol is
looking for him.
More recently, in December 2019, another high-profile
executive, Jagdish Khattar, the former managing director of Maruti Udyog Ltd.,
India’s largest carmaker, was booked by the CBI for charges against him of
cheating the Punjab National Bank of Rs 110 crore. That case is still being
investigated although Khattar has not been arrested.
These few examples are really the tip of the iceberg.
Nefarious deals between banks and influential entrepreneurs abound in India.
Not long ago, a private sector steel company was embroiled in a similar
controversy when a partly government-controlled financial institution was
believed to be lending it vast sums of money although past loans taken by the
company had turned into non-performing assets.
The curious paradox about such cases is that in many
of the cases, the authorities, including investigative agencies, wake up when
it is already too late. In Yes Bank’s case, the RBI has been issuing warnings
about financial inconsistencies in the bank’s reports. Doubts about Mallya’s
ability to run his airline and manage his finances have been floating around
long before he fled India.
The other, more disheartening, aspect of all this is
the hagiographical treatment that the media have meted out to some of these
controversial promoters and businessmen. Vijay Mallya, now 64, has had
countless laudatory cover stories or “puff pieces” about him. Rana Kapoor, an
aggressive publicity seeker, has found similar success with the Indian media.
Jagdish Khattar was routinely lionised by India’s business press during his
stint as managing director of Maruti between 2002 and 2007.
The truth is that India’s institutions, particularly
in the financial sector, are prone to misuse—either because of the clout of
powerful corporate borrowers or because of complicit bank officials, or both.
India’s government has various laws, organisations and agencies that have been
established to prevent financial fraud. Yet, with regular frequency, shocking
instances of brazen misuse of the financial system come to light. What is needed
is a will to break the cronyism that plagues the nexus between financiers and
their corporate clients. And when frauds come to light, swift dispensation of
justice could work as a deterrent.
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