‘RBI Failed As A Regulator In The Yes Bank Fiasco’

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.

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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.

ALSO READ: Yes Bank Debacle & Crony Capitalism

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.

Satabdi Gantait

‘I Am Thankful To RBI, Govt For Revival Of Yes Bank Ops’

Satabdi Gantait had her salary account and Fixed Deposit in Yes Bank. She recounts the initial panic and the relief after the bank resumed normal operations

I can’t tell you how relieved I am after knowing that Yes Bank is operational again, thanks to timely intervention by the RBI and Centre government. I have my salary account in Yes Bank and when the news of Yes Bank collapse came, about a fortnight ago, many of us didn’t know what to do. I also had Fixed Deposits (FD) in the bank so I was doubly worried as to what fate my savings has in store.

Given that it was the beginning of the month, I was supposed to make payments to several people as well. It was chaos. Thankfully, I had another account in a different bank but it is horrifying to think about those who had all their savings in Yes Bank.

ALSO READ: Yes Bank Debacle And Crony Capitalism

I myself had been following news about the economy and various banks on and off, but in these times when there is so much of information flowing in all the time, one doesn’t know whom to trust and whom not to. Also, many a times one isn’t completely aware of what a particular step from the government means. We are dependent on news channels to decode information for us.

Following the news of Yes Bank collapse, the UPI (an online payment interface) on my phone stopped functioning. I teach interior designing to students in Kolkata and fashion is an industry where large amount of money exchanges take place. So undoubtedly there was panic in our group.

Thankfully, Union Finance Minister Nirmala Sitharaman came out and assured ordinary people depositors that their money was safe. That people didn’t need to panic and that the government was doing all it can to rectify the situation as quickly as possible. This was reassuring but we kept our fingers crossed. I wonder why we need to reach a situation like the Yes Bank one in the first place that ordinary people begin to panic!

ALSO READ: Centre Clears Plan To Salvage Yes Bank

I suffered during demonetisation as well and for a moment (at the beginning of the crisis around 15 days ago) I thought 2016 was going to play itself out once again in 2020.

I run an interior design firm and had to make and receive large amount of money. Both depositing and withdrawing money had become extremely difficult back then. Thankfully this time things are different.  I hope no more banks reach such a state, so that ordinary people don’t worry whether they will be able to withdraw and use their own hard-earned money.

Yes Bank Debacle & Crony Capitalism

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.

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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.

ALSO READ: Nirav Modi Arrested In London

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.