Yes Bank crisis: The banker who crushed his ‘diamonds’

On September 28, 2018, after he announced that he was going to step down from YES Bank, Rana Kapoor went on an emotional tirade on Twitter. In a series of tweets, he had claimed: “Diamonds are Forever. My promoter shares of YES Bank are invaluable to me.”

In a mere span of 14 months, Kapoor made a complete U-turn. He sold his entire stake in the bank, as the shares of the bank continued to get hammered by the investors.

In the past year, as the story of India’s fourth-largest private lender YES Bank unfolded, DH spoke to multiple people to get the real sense of the issue – bank’s executives, directors, former employees, customers, investors, Rana Kapoor himself, and his colleagues at his previous jobs.

In the hindsight, it seems like instead of ‘building’ the bank, Kapoor destroyed it.

Genesis

In February 1995, a team from Rabobank arrived in India, scouting for opportunities in India’s expanding financial services market. Kapoor, his brother-in-law Ashok Kapur and Harkirat Singh made a proposal to the visiting team for two joint ventures: a non-banking financial company and a bank. During the next year, Kapoor held meetings with the Rabobank executives in India, Singapore, and the Netherlands.

The shadow bank was set up in 1997, with the three Indian partners chipping in with an equity capital of Rs 9 crore each. In 2003, they sold their stake for $10 million each, generating the seed fund for the bank, which would be named as YES Bank. In 2003, the team was granted a banking license by the Reserve Bank of India (RBI). Rana Kapoor held a 26% stake in YES Bank, Ashok Kapur held 11%, and Rabobank International held a 20% stake. The bank primarily operated as a corporate bank with retail banking, and asset management as a subsidiary function.

However, things turned ugly in 2008. Ashok Kapur, who had gone to have dinner with his wife Madhu Kapur at Trident hotel, was one of the 166 victims of the 26/11 terrorist attack.

In 2009, when Madhu approached the bank to nominate her daughter Shagun on the board, it was repeatedly rejected. Subsequently, Madhu’s name was stricken from the list of major shareholders. As of March 31, 2010, Kapoor had held 14.8% stake and Madhu held 12.68%.

To add fuel to the fire, Kapoor published a brief history of the bank in December 2012, without any reference to Ashok or Madhu. The battle went to Bombay High Court, which ruled in favour of Madhu.

Rana’s ‘yes’ bank

After a coup against his brother-in-law’s family, Rana Kapoor started operating YES Bank in his own way. Many investors, who had bet huge on YES Bank story started calling it ‘lender of last resort’, as the Bank used to say yes to financing each and every stressed entity that came its way, albeit with a high upfront payment of 10%. To bolster investor mood, the bank used to evergreen the loans every now and then.

In fact, many pointed fingers at the bank’s risk team in the disbursement of loans. The allegations of evergreening became more obvious with the Mackstar fiasco last year.

According to the offshore investor Ocean Deity Investment Holdings — an erstwhile arm of DE Shaw and the 78% owner in Mackstar, the Indian joint venture (JV) where HDIL entities hold minority stake — the loans from Yes Bank to the JV was not authorised by the majority shareholder. The money was transferred to bank accounts of other HDIL group companies, almost simultaneously, to repay loans taken by them from Yes Bank. HDIL, owned by the Wadhawan brothers were also involved in the PMC Bank scam.

But the Rs 3,700 crore exposure to HDIL is not the only stressed asset that the bank is facing right now. The list includes ADAG, Cox&Kings, Zee, CG Power, DHFL and many other entities.

YES Bank’s dealing with DHFL, during Kapoor’s tenure has come under severe scrutiny of Enforcement Directorate. DHFL had sanctioned a loan of Rs 600 crore to DoIT Urban Ventures, which according to ED was controlled by Rana Kapoor’s family. This happened at a time when DHFL failed in repayment of its dues to Yes Bank.

The debt exposure in DHFL in terms of short-term debentures between April - July 2018 was Rs 3,700 crore. YES Bank also gave a loan of Rs 750 crore to RKW Developers – which is under the scanner for financing underworld kingpin Dawood Ibrahim’s aide Iqbal Mirchi who purchased properties in South Mumbai.

Even as ED took no time in rounding up Rana Kapoor on Friday, in his first reactions to DH, he tried washing off his hands from the mess at YES Bank.

According to one of the bank’s senior executives, it was a syndicate of “evergreening going on between YES Bank, DHFL and HDIL.”

More than 54% of the bank’s net-worth is stuck in highly stressed assets. According to bank insiders, the bank needs Rs 20,000 crore immediate capital to write off all the bad loans on its balance sheet – a figure that was hinted at by SBI Chief Rajnish Kumar on Saturday.

As the bank grew unrealistically fast, RBI started enquiring about the bank’s mess in 2017. Later in 2018, when the bank proposed to extend Rana Kapoor’s term as MD & CEO for three more years, the Reserve Bank said a firm ‘no’.

Enter Gill

As Kapoor stepped aside, Ravneet Gill, a former Deutsche Bank executive took charge of the bank.

It was under him that the mess started surfacing with the Q4 2019 results. YES Bank reported its maiden massive quarterly loss of over Rs 1,500 crore. Capital inflows to the bank began to shrink. Its shares started to tumble. However, in November 2019, the Bank announced that it got an offer from a ‘foreign investor’ worth $1.4 billion (Rs 10,000 crore) sending markets into jubilation, which turned to be wrong. Every time the bank’s board met, new names of investors were announced to the public, but no decision was made. This took a toll on the bank’s deposits, which kept depleting. The bank also delayed its December quarter earnings but things turned murkier and RBI took control of the bank.

Now, questions are being raised on RBI’s supervisory role. Has it acted too little too late? “RBI has acted too little and too late in letting the problems at YES Bank fester. It was known about 6-8 months ago itself that it was not able to raise any new equity funding,” said Shriram Subramanian, MD at proxy advisory firm InGovern.

The once ‘diamonds’, which were picked up by the many retail investors, are now just peanuts -- worth less than one-twentieth of its value 20 months ago. And YES, by December last year, the ‘diamond merchant’ sold his ‘diamonds’ at one-third of the worth it was a year ago.