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The recent debacle of the Indian private sector bank, Yes Bank, whose board was suspended and superseded by the Reserve Bank of India (RBI), once again brings into sharp focus the extent and depth to which crony capitalism continues to prevail in the country’s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 On March 5, India’s central bank, the Reserve Bank of India, announced that it had suspended and superseded the board of Yes Bank.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.

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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.

Fugitive Proclaimed Offender Vijay Mallya

Will Mallya Return Before May 2019 Elections?

Deepak Pant Indira Gandhi’s penchant for issuing ordinances instead of the long-drawn legislative route to enact laws earned her the reputation of ‘governance by ordinance’ in the 1970s. The current overweening focus of the Narendra Modi government on spin and perception management has attracted it the sobriquet of ‘governance by headlines’. The short answer to the question in the headline is no, Vijay Mallya is unlikely to return to India anytime soon, contrary to the BJP’s desire to present him as a trophy before the May 2019 elections. The long-drawn legal process involved in extradition laws ensures that he will have recourse to appeals even if the Westminster Magistrates Court clears his extradition on December 10. The judgment is due on that day, but could well be postponed to early next year, after the Christmas-New Year break due to case overload in the court. But BJP spin doctors will be hoping that even if Mallya is not extradited in person by May 2019, the judge clearing his extradition itself will be enough to unleash headlines that will serve the purpose just fine before the elections: a case of politics trumping over economics. Never mind the the recovery of multi-crore loans, the appeals process and other hoops that need to be crossed before eventual extradition. It is also of no consequence in the cut-and-thrust of politics that even after courts cleared Tiger Hanif’s extradition, and he lost appeals in 2013, the home secretary – who has the final say – has still not signed off on his journey back home to face justice in a 1993 Gujarat bomb blast case. Mallya and his witnesses in the trial have often mentioned that he is the focus more of politics than attempts to recover loans: “I respectfully say that I have made and continue to make every effort, in good faith to settle with the Public Sector Banks. If political motivated extraneous factors interfere, there is nothing that I can do”. He wrote in a letter to Modi: “I have become the ‘poster boy’ of bank default and a lightning rod of public anger…I have also become a political pawn about whom politicians across party lines make reference to in public statements to ether influence the electorate or set an example before several other industrialists whose companies are facing financial stress”. Whether Mallya’s case feeds into the ‘governance by headlines’ paradigm back home remains to be seen, but New Delhi’s focus on the case has led to some improvement in official responses and correspondence while dealing with extradition cases in British courts. This is significant in the context of the poor record of securing extraditions since the India-UK treaty was signed in 1992. Hand-written FIRs or documents of poor evidence value submitted in previous cases don’t exactly make the cut in British courts. There has been no high-profile extradition from the UK to India so far. In Mallya’s case, thousands of pages of documents have been submitted in court; most them needed to be carted in trolleys at every hearing. Officials from India attended every hearing since the trial began in December 2017, sensitising them to the technicalities and requirements in British courts. Every document, material or assurance sought by the judge in the case has been produced and submitted. Reports say that one joint secretary in a key ministry in New Delhi was removed when there was delay in submitting a document required in the court. The Mallya case is seen as a learning exercise for Indian officialdom, but whether other cases would be pursued with similar focus remains to be seen. Another high-profile extradition case likely to begin soon is that of Nirav Modi, who will be arrested and bailed after the home secretary certifies India’s request to extradite him. Less high-profile cases are also going through courts. Extradition proceedings have begun in the Westminster Magistrates Court against two Indian citizens – Lokendra Sharma and Kishan Singh – who were arrested recently for offences related to drugs and domestic violence. Sharma and Singh are among 18 extradition requests pending in London, including those of Mallya and Modi. A judgement is also expected year on India’s appeal in the high court against the magistrates court’s ruling in October 2017, turning down the request to extradite alleged cricket bookie Sanjeev Chawla face trial for his role in match-fixing during South Africa’s tour of India in 2000. Other pending extradition cases are those of Rajesh Kapoor and Seema Kapoor, Tiger Hanif, Shaikh Sadiq, Pavilose Fernandez, Rishikesh Surendra Kardile, Chandan Sharma, Patrick Charles Bowring, Palaniappan Rajaratinam, Kartik Venugopal, S Balakrishnan, Ritika Avasty, Kavaljit Sinh Mahendra Singh Raijada and Arti Dhir, and Raj Kumar Patel.]]>

Is There Really No Alternative To Mr Modi?

The phrase, “There Is No Alternative”, or its acronym, ‘TINA’, is famously attributed to former British Prime Minister, Margaret Thatcher who used it to describe her conservative view that the free market economy was the only system that worked. Later in the 1980s, ‘TINA’ was in vogue in the Indian media, which used it frequently when Rajiv Gandhi emerged as the only alternative in various pre-election opinion polls in a scenario where the opposition was fractured and broken. With parliamentary elections approaching once again and Indian political parties moving rapidly into campaign mode, ‘TINA’ has re-surfaced, this time to describe how Mr Narendra Modi could be the only alternative that voters may opt for.

The outcomes of elections in India are notoriously difficult to predict. Pre-election surveys and opinion polls are usually hit-or-miss affairs that more often than not get it wrong. Still it is worth noting a recent survey carried out by the India Today group of publications. Its first weekly Political Stock Exchange, which is described by the group as a tracker of India’s political pulse, has found that nearly 79% of respondents in Uttar Pradesh, India’s most populous state that is represented by 80 members of Parliament, and in Uttarakhand, another northern state that has five MPs, are not even aware of the controversy surrounding the Rafale deal for buying fighter aircraft from a French company. The Rafale deal has been the focus of media attention—grabbing headlines and airtime—and Mr Modi’s government is accused of not being transparent about details of the deal and whether conditions were tweaked to favour interested parties. The fact that just 21% of respondents were aware or concerned about the deal speaks volumes about the apparent disconnect between real public discourse and what India’s media and intelligentsia are bothered about.

The same tracker, which polled more than 30,000 respondents, also found that 48% of them preferred Mr Modi as the next Prime Minister, while his chief rival, Congress party’s president, Mr Rahul Gandhi, was preferred by only 22%. It would be imprecise to arrive at a generalised conclusion based on one poll in two states but it might be pertinent to take the tracker’s findings as a cue to gauge what India’s 670 million voters will be largely bothered about as they head to the polling booths when elections—officially scheduled for next May—are held. The Rafale affair may not be top of mind in their concerns. The extradition of defaulting a prominent businessman such as Mr Vijay Mallya who fled to Britain may not either.

The disconnection with what the general public’s perceptions are is not a problem that afflicts the media alone. Political parties, particularly those in the opposition who are trying to cobble together a united front to challenge Mr Modi and his Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) have largely focused on issues such as the Rafale deal and Mr Mallya’s extradition or how he was allowed to flee the country after defaulting on thousands of crores of rupees. These issues may have little or no resonance for those whose votes really matter. In India, where a quarter of the population (or more than 300 million people) lives on less than $1.25 a day, the value of casting a vote is generally inversely proportional to the level or degree of economic and social privileges that a potential voter enjoys. The higher you are on the socio-economic scale, the less is a vote’s worth; the lower you are on it, the higher is the value of a vote.

For Indians who are struggling to break out of the shackles of poverty, the concerns rarely involve issues such as controversies over large aircraft deals or bringing an erring liquor baron to justice. Instead, whom they ultimately vote for depends on who they think can help make their lives and those of their families better. Random conversations with ordinary people—on the streets of India’s teeming cities and towns, or in its villages can reveal that they’re aren’t really as unhappy with Mr Modi’s government as is made out to be. In Mewat, a district in BJP-ruled Haryana where nearly 80% of the population is Muslim, there is surprising support for him. The ordinary Indian’s views on many “controversies” during his tenure over the past four years can be surprising. For instance, although there is little hard evidence that Mr Modi’s hasty demonetisation of large-denomination currency notes actually helped in reducing unaccounted for cash, the man on the street still believes it did.

There is also the human factor. Mr Modi fought the 2014 elections in a manner that recalled personality-centred presidential elections in democracies such as the US. He was projected as his alliance’s prime ministerial candidate; he deployed his oratorical skills and demagoguery to their fullest; and, at hundreds of massive rallies, made promises of development and progress that resonated with the common man. In contrast, the then ruling Congress-led United Progressive Alliance’s (UPA) election campaign appeared feeble. It didn’t project a prime ministerial nominee; 10 years of its rule were pockmarked, particularly in the second inning, by scams and controversies; and its leader-by-default, Mr Gandhi, came across as a novice.

Four years later, not much has changed. It is true that cold hard facts can be used to argue that Mr Modi’s tall promises of development, progress and improvement of the ordinary Indian’s life have not all turned to be true. Unemployment and lack of job growth remain serious problems; prices, including that of fuel, have surged; the rupee’s value has fallen sharply; and, although quarterly GDP growth rates look good, viewed in the context of a very low base, they aren’t enough. But when millions of Indians head to the electronic voting machines when elections are held, these may not matter.

Consider first the tremendous confidence of the people that Mr Modi appears to command. In many Indian states, even those that are ruled by BJP or its allies, even people who are not happy with their state governments are willing to plump for Mr Modi at the Centre once again. The prime reason for that might be the apparent ‘TINA’ factor. As in the 1980s, India’s opposition parties, despite all their attempts to unite against the NDA, remain fragmented and rift-ridden. There is no clear “face” that the opposition has to challenge Mr Modi with.

If you thought Mr Gandhi could be that face, think again. The head of a prominent Indian media group told this writer recently that the problem with Mr Gandhi was that he’s “too eclectic”, which could be a reference to his unpredictable and diverse notions about issues. Think about it. Do you really know what Mr Gandhi’s views are on various things—on the economy, on international relations, on India’s internal security, or on societal issues? His public pronouncements, while less laden with gaffes than they used to be a few years ago, are often contradictory and imprecise. There is little clarity in public of what sort of governance he could deliver if he becomes Prime Minister. What is his vision or strategy for boosting job generation? Or, for reviving India’s farms? Or dealing with an irksome neighbour such as Pakistan?

In contrast, like him or not, when it comes to his public pronouncements, Mr Modi is WYSIWYG (What You See Is What You Get). He may or may not have delivered on the promises he made in 2014, but anyone who hears him speak—in public meetings or on his monthly, informal radio speech to the people—knows what he thinks on the issues he talks about.

Mr Modi’s powerful personality and the clarity of purpose and thought he expresses are clear advantages when he heads towards the next elections but he has other help at hand. His regime may be routinely criticised in social and other niche digital media but these reach and are read by a small sliver of Indians. India’s larger mainstream media, which reaches a much wider audience, exudes deference towards him and his government and any criticism there—be it of the Rafale deal or of how Mr Mallya was allowed to flee the country –is usually remarkably mild. When it comes to fighting elections in India, that kind of implicit support is worth much more than pinpricks of criticism on social media platforms that neither an impoverished farmer nor an angry, unemployed youth can be bothered about.

Sanjoy Narayan tweets @sanjoynarayan    ]]>