Defaulters looted, we’re paying

Defaulters looted, we’re paying

Yes Bank’s fall and revival

Yes Bank was touted as one of the country’s most successful private lenders.

The Indian public was caught unawares on March 6 when, in a surprise announcement, the Reserve Bank of India superseded the board of Yes Bank, India’s fifth-largest private lender, and appointed an administrator to oversee the bank and improve its governance. It also announced a moratorium on cash withdrawals limiting it to Rs 50,000 per person per month (to be relaxed on March 18).

Following this announcement, long queues of anxious customers and depositors lined up in front of Yes Bank branches all over the country to withdraw their hard-earned money. It was reminiscent of the aftermath of demonetisation and the collapse, only a few months ago, of PMC Bank in Maharashtra.

Finance Minister Nirmala Sitharaman tried to assure the anxious public that this is a temporary phase and depositors have “nothing to worry” about. One wonders as to what happened to her assurances given to those who had deposited their hard-earned money in PMC Bank. In response to the attacks from opposition leaders, notably Rahul Gandhi and P Chidambaram, the finance minister blamed the previous UPA government for the bad loans accumulated by Yes Bank, stating that “loans were given on phone to chacha-bhatija”. We should thank the finance minister for being gracious enough not to blame Jawaharlal Nehru for Yes Bank’s bad loans!

During a debate on a leading TV channel, the BJP spokesperson squarely blamed the UPA government for the bad loans accumulated by Yes Bank and asserted that the Modi government had protected depositors by hiking the insurance coverage for bank deposits to Rs 5 lakh from the previous Rs 1 lakh. If one looks at the loan book of Yes Bank, though, it is clear that bad loans rose from over Rs 55,000 crore in 2014, when the Modi government took office, to Rs 2.41 lakh crore in 2019! The Modi government has been in power since the last six years and one needs to know as to what it has been doing all these years about this growing toxic debt. The crisis had been building for quite some time, but the government did not act.

Moreover, former RBI governor Raghuram Rajan has been warning the Modi government time and again that its flagship Mudra loan scheme will bring in the next set of non-performing assets (NPAs). But the government has preferred to ignore this warning by an internationally reputed economist who had foreseen the 2008 global financial crisis.

Yes Bank was touted as one of the country’s most successful private lenders. Founded in 2003 by an international banker, Rana Kapoor, the bank had boasted of deposits of Rs 2.09 lakh crore and assets worth Rs 3.47 lakh crore, as per a media report. The bank enticed the public by giving attractive interest rates as compared to public sector banks. It also lent easy money to people who couldn’t get loans from other sources. To cite a report, “the bank that started from scratch and built an asset book of over Rs 3 lakh crore in a little over a decade was signing away cheques to nearly every borrower who either went bust or turned NPA within a year. The bank’s share price, which at one time rose to Rs 1,400 per share, crashed to Rs 16.60 per share.”

As per the RBI announcement, the State Bank of India, along with other private sector banks, will buy (or has been forced to buy) a 49% stake in Yes Bank and acquire shares at Rs 10 per share (face value of Rs 2 and premium of Rs 8 per share). Perhaps to compensate for this, SBI announced a surgical strike on small savers and senior citizens by further lowering interest rates on deposits. We are told that the Life Insurance Corporation (LIC), which was forced by the government to pick up a 51% stake in IDBI Bank, will also be asked to pick up a stake in Yes Bank. Lest we forget, the LIC was forced to acquire shares in IDBI Bank at Rs 60-61 per share, the value of which has now plunged to Rs 27 per share. The same fate may await SBI’s holding in Yes Bank.

According to the Investors’ Grievances Forum, founded by BJP MP Kirit Somaiya, the big defaulters of Yes Bank include the Anil Ambani group (Rs 12,800 crore), Essel (Rs 8,400 crore) and DHFL (Rs  4,735 crore). Why should the common man and public sector banks pick up the toxic debt of Yes Bank, instead of these big defaulters being made to pay up?

Surprisingly, while the Enforcement Directorate has been probing the role of DHFL, it has chosen to issue summons to Anil Ambani only now. Lest we forget, Anil Ambani had bagged a large chunk of the Rs 30,000-crore offset contract in the Rafale fighter jet deal that the Modi government signed up to. In a recent case in a UK Court, Anil Ambani had claimed that his net worth was zero! Surprising how such a person managed to bag the lucrative Rafale offset contracts. The UK judge hearing the case rejected Ambani’s contention and asked how he had bought an expensive yacht if his net worth was zero.

The big defaulters are roaming freely around the country or are allowed to flee the country to safe havens and stash away their loot. Successive governments have been pressuring banks to lower their interest rates to help the corporate sector to accelerate economic growth. Despite this, our growth rate has hit a low of 4.5-4.7%, which will nosedive further due to the coronavirus pandemic.

(The writer is an economist)

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