Extracts from `Pandemonium: The Great Indian Banking Tragedy’
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Sometime in September 2018, an anonymous letter reached Reserve Bank of India Governor Urjit Patel’s table, alleging various violations by Rana Kapoor. It made a string of allegations about poor governance and cast aspersions on Kapoor’s integrity.
Allegation No 1: Kapoor’s family purchased a villa in Lutyens’ Delhi from Avantha Group chairman Gautam Thapar to settle a bad loan. Yes Bank had given `300 crore in an all-purpose corporate loan to the group.
Allegation No 2: Yes Bank had written off a loan of `150 crore given to Nathella Sampathu Chetty Trust of Chennai.
Allegation No 3: Kapoor was paying huge compensation to some employees – much more than what should have been given to them – and they were primarily working for his family offices.
At the RBI, supervision and regulation, two key departments that oversee how banks are run, are typically handled by two deputy governors. After Deputy Governor S.S. Mundra stepped down in July 2017, N.S. Vishwanathan, the senior-most deputy governor, who was handling regulation, took over the supervision portfolio of Mundra. He ran it until M.K. Jain, a commercial banker like Mundra, succeeded him in June 2018.
By that time, the anonymous letter had already reached the governor’s office and an investigation was on. Vishwanathan told his colleagues that Kapoor was running a very high-risk bank for high returns and the business model could not be sustained. Very few loans were going bad at that time but Vishwanathan was sure that Kapoor was ‘managing’ the show.
RBI Gets into Action
The RBI got into action. But it was not an easy task as Kapoor had many moles in the central bank. Every move that RBI was contemplating was relayed to Kapoor in no time. It took a while for the central bank to identify the suspects and isolate them from the investigative process.
The Thapar property at 40, Amrita Shergill Marg, New Delhi, was acquired in partial settlement of dues, and the account was still alive. What intrigued the RBI team was that the property was not offered as security, while taking the loan. Had that been the case, the security could have been attached.
When the property offered as security does not cover the entire loan that has turned bad, the bank can attach more properties. But the CEO’s family cannot buy it by floating a company. It must be auctioned and there must be a transparent and open bidding process, starting with advertisements in newspapers.
Avantha Holdings, the holding company of the Thapar Group, was given a general-purpose corporate loan, an unsecured facility. The loan and the sale of property by the company were two separate deals.
Kapoor’s wife and family bought the property through Bliss Abode Pvt Ltd, incorporated a few months before this, with nominal capital.
The loan given to the trust in Chennai was sanctioned by Kapoor himself and written off by him. Typically, a write-off should be done by a higher authority – in this case, the bank’s board. But this was not referred to the board.
Who Wrote the Letter?
None knows who wrote the letter to the RBI.
Varun Sood, a writer at the Morning Context, a news website, put up a report on this deal at LinkedIn in March 2020. He claimed this was written in December 2018 but never published. It says:
Avantha Realty, the privately-owned firm which owned the 40, Amrita Shergill Marg property, had borrowed `400 crore at an 11 per cent interest. The bank’s in-house experts had valued the property at `330 crore. Six months later, in October 2016, property consultants, Cushman and Wakefield, hired by Yes Bank, put a market value of `357 crore.
In June 2017, Thapar expressed its interest to sell this property and asked Yes Bank to remove the charge on the property. The bank removed the charge, claiming that it is normal practice. Three months later, in August 2017, Rahul Bhatia, owner of IndiGo Airlines, expressed his interest to buy the property for `375 crore. For some reason, the deal fell through. Finally, towards the end of August, Bliss Abode emerged as the winner, when it agreed to pay `378 crore to buy the property.
…A spokesperson for IndiGo declined to offer a comment, saying it does not comment on personal matters. An email sent to Bliss Abode went unanswered.
Referring to the same property deal, an Outlook Business story by Krishna Gopalan in October 2019 says:
The default on the loan meant that it went on the block and was picked up by Rahul Bhatia, co-founder of Interglobe Aviation, the company behind IndiGo Airline, at a price significantly more than what was quoted. Kapoor managed to quietly scuttle that sale and bought it for himself. A livid Bhatia wrote to the government complaining about the inappropriateness of the process and a government, already uncomfortable with the running of Yes Bank, began to push for Kapoor’s removal.
The Delhi property was not the only deal. There were quite a few, including Khursheedabad building, a residential apartment block, jointly owned by Citibank and healthcare major GlaxoSmithKline on Altamount Road in Mumbai, which was put on the block in March 2018. The Kapoor family bought this property for `128 crore to build their home. The building was located next to Mukesh Ambani’s 27-storey home, Antilla.
There were other gross irregularities. The RBI followed the money trail and found that money was travelling through seven-eight-nine banks on the same day – either before entering Yes Bank’s accounts or after leaving Yes Bank.
Detecting this was not easy. Money can be electronically transferred by the press of a button and flow through banks, NBFCs, real estate developers and other entities. It is extremely difficult to do simultaneous scrutiny as not all the entities are regulated by the RBI.
The RBI investigations found many skeletons in Yes Bank’s closet. For instance, there were many employees on the bank’s payroll who were also working for Kapoor’s family offices.
The bank was also charging exorbitant processing fees – in some cases as much as 25 per cent of the loan amount. Kapoor was picking up borrowers other banks would not touch with a bargepole. The RBI found this a highly ‘unnatural’ banking practice.
There was no proper appraisal of loan proposals, no checks on sanctions. Aided by a few lieutenants, Kapoor was running the bank like his fiefdom. None of the board members ever raised questions about his style of functioning.
The RBI also found that one Suraksha Asset Reconstruction Ltd (formerly known as Suraksha Asset Reconstruction Pvt Ltd), promoted by Sudhir Valia and Vijay Parekh, purchased most of the bad loans of the bank. There was no due diligence, and no bids for price discovery when Yes Bank sold its bad loans.
Valia, brother-in-law of Sun Pharma’s MD Dilip Shanghvi, a director on the central board of RBI, was an executive director of Sun Pharmaceutical Industries Ltd and director of Sun Pharmaceutical Advanced Research Company Ltd. He changed his role in Sun Pharma from a whole-time director to a non-executive, non-independent director from 29 May 2019.
When the investigation and the database of the CRILC confirmed RBI’s worst suspicions, it decided that Kapoor had to go.
When the RBI decides to remove a bank’s CEO, the regulator typically doesn’t allow the incumbent to continue once the term ends. It can also sack private bank chiefs, a power it lacks in the case of PSBs.
But it needs to have proof of wrongdoings. Sacking the CEO of the apparently profit-making, well-capitalised Yes Bank, was not an easy task.
Kapoor had to Go
Kapoor’s term was to end on 1 September 2018. Predictably, at the 12 June annual general meeting, the bank’s shareholders had approved his reappointment for another term of three years and the bank sent the proposal to RBI for approval.
When Yes Bank informed exchanges on 30 August that RBI had approved Kapoor’s reappointment ‘till further notice’ (instead of offering another three-year term), it was clear that the regulator was not in favour of allowing him to continue at the helm.
A little over a fortnight later, in an exchange filing, on 19 September 2018, Yes Bank said: ‘The Reserve Bank of India has vide letter dated 17 September 2018 received on Wednesday, intimated that Rana Kapoor may continue as the MD & CEO till 31 January 2019,’ adding that the board of the bank will meet on 25 September to decide on the ‘future course of action’.
The RBI wrote to the Yes Bank board, headed by Ashok Chawla, former finance secretary, to look for Kapoor’s successor.
There was hard lobbying with the regulator to allow Kapoor to remain in the saddle as ‘the bank could not run without him’. In one such meeting at RBI, Kapoor called the bank his son – his only son beside his three biological daughters – tears rolling down his eyes. But the regulator was not impressed.
The RBI letter was extremely critical of the ‘persistent governance and compliance failure reflected by the bank’s highly irregular credit management practices, serious deficiencies in governance and a poor compliance culture’.
It said:
The serious lapses in the functioning of and governance in the bank and, in particular, the poor compliance culture, other serious violations of statutory and regulatory guidelines during the past three financial years, notwithstanding the subsequent corrective actions stated to have been initiated by the bank, reinforce our grave concern and regulatory discomfort with the role of the incumbent MD & CEO in the governance, management and superintendence of the affairs of the bank.
Chawla was then also the chairman of National Stock Exchange. He saw merit in the RBI’s directive but he stepped down from the Yes Bank Board in November 2018 after being named in the chargesheet filed by the CBI. Brahm Dutt, a board member, replaced him.
The bank cancelled the first round of interviews to pick Kapoor’s successor but at RBI’s insistence, it had to continue the process. Management consulting firm Korn Ferry identified close to a dozen persons as a prospective successor. One of them was Ravneet Gill, then CEO and MD of Deutsche Bank in India.
My Bank
Kapoor and his family-run firms YCPL and MCPL exited from Yes Bank in December 2019, losing all control and voting rights. This was some ten weeks after Kapoor tweeted ‘Diamonds are Forever: My promoter shares of @YesBank are invaluable to me.’
Three other tweets of Kapoor on 18 October 2019 read:
I will eventually bequeath my @YESBANK Promoter shares to my 3 daughters and subsequently to their children, with a request in my Will stating not to sell a single share, as Diamonds are Forever!!
Even after I demit office as MD & CEO of YES BANK, I will never ever sell my @YESBANK Shares.
In this leadership transition at @YESBANK, I continue to remain fully committed to the interests of the Bank and all its stakeholders. I will be fully guided by the Board of Directors of YES BANK and the Reserve Bank of India.
However, after selling almost the entire promoter group stakes of the two family-run firms in September 2019, Kapoor was left with 3.92 per cent and YCPL 0.8 per cent. MCPL had exited before that.
Kapoor, in his personal capacity, sold a part of his direct stake between August and October 2019, primarily to repay debts taken by the promoter group firms. In a stock exchange filing on 9 January 2020, Yes Bank said that Kapoor and Yes Capital were left with no stake at end-December.
Kapoor was never a commercial banker. As a corporate banker, he was great in raising money and a relationship manager par excellence but how could he have the last word on everything in a bank, including HR and technology?
Bharat Patel, former chairman, Procter & Gamble India, a part of the first board of the bank, was instrumental in choosing the name Yes Bank from the shortlisted five names. The other four were Gateway Bank, Octra Bank, Mint Bank and My Bank.
From Yes Bank to No Bank
In 2004, the RBI granted a licence for the bank; in 2008 after Kapur’s death, Kapoor got the licence to run it his way. He changed the name from Yes Bank to My Bank and, by the end of his tenure, it became No Bank for him.
The bank retracted his performance bonus of `1.44 crore, clawing back 100 per cent of the performance bonus paid to Kapoor for 2015 and 2016. It had not paid any bonus to Kapoor for 2017 and 2018.
For the record, Kapoor was arrested by the ED on 8 March, a day after the CBI Economic Offences Wing registered an FIR against him in Delhi, for alleged money laundering.
Among many other allegations, the ED has found that in April–June 2018 Yes Bank invested `3,700 crore in the short-term debentures of Dewan Housing Finance Corporation Ltd (DHFL) whose promoter Kapil Wadhawan paid a `600 crore kickback to the Kapoor family in the form of loan given to DOIT Urban Ventures (India) Pvt Ltd. Kapoor’s three daughters own this company through MCPL.
‘It was also apprehended that Mr. Rana Kapoor had similarly misused his official position in several other transactions and had obtained illegal kickbacks directly or indirectly…’
The CBI on 25 June 2020 filed a chargesheet against Kapoor, his daughter Roshni and DHFL promoters Kapil and Dheeraj Wadhawan, alleging that the Kapoors and Wadhawans conspired with each other to siphon off public money and benefit themselves.
Kapoor, his wife, and three daughters held 168 bank accounts – 69 of them with HSBC, 79 with HDFC Bank, eight with DCB Bank Ltd, five with Yes Bank, four with Axis Bank, and one each with Central Bank of India, IDBI Bank and PNB.
The ED attached the 168 accounts which had `59.4 crore in the form of deposits. It also attached 15 mutual fund accounts and 58 paintings of Aslam Shaik and one each of Arpana Caur and M.F. Husain.
The London-based Shaik’s paintings are known for the ‘kinetic energy of his bold strokes and daring impasto work.’ That mirrors Kapoor’s life and career.
