The Reserve Bank of India last week superseded the board of directors of Rana Kapoor-promoted Yes Bank and later the Enforcement Directorate has arrested Kapoor over kickbacks. The RBI has limited cash withdrawal to Rs 50,000. The depositors can withdraw up to Rs 500,000 for medical treatment, higher education fees, expenses on marriage and other ceremonies, and “unavoidable emergencies”. The cap applies across even multiple accounts of the same depositor.
RBI has appointed deputy managing director and chief finance officer of State Bank of India, Prashant Kumar, as an administrator of the bank. Although the central bank has said that the moratorium will last for 30 days, sources said that a plan involving SBI is in the works. This includes the possibility of a revival by an SBI-led consortium of new owners including Life Insurance Corporation.
In a statement, RBI said it had given the bank’s management enough time to try and raise capital and find a ‘market-led solution’ to its problems. However, the bank failed to find investors who would support a revival package. “In the absence of a credible revival plan, and in public interest and the interest of the bank’s depositors, it had no alternative but to apply to the central government for imposing a moratorium… effective from today,” the RBI said.
RBI wanted to avoid ‘systemic issues’
According to government sources, the management led by Ravneet Gill kept pushing the deadline for raising capital, prompting RBI to finally act. “RBI had to step in because it did not want to create systemic issues,” said a senior official. While depositors will be protected up to Rs 500,000, thanks to deposit insurance cover and the proposed reconstruction/amalgamation that RBI is working on, shareholders are likely to lose out. They include LIC, which holds an 8% stake, and mutual funds such as Nippon Life, Franklin Templeton and UTI Asset Management. JP Morgan said in a report, “We believe forced bailout investors will likely want the bank to be acquired at near-zero value to account for risks associated with the stress book and likely loss of deposits.”
Yes Bank’s troubles first came to light in 2017 when RBI said that its bad loans were more than the bank had divulged. Following an inspection of the bank, RBI denied an extension to its founder and chief executive Kapoor.
In subsequent years new defaults came to light. Some of the big defaulters to whom the bank had advanced funds included IL&FS, Anil Ambani group, CG Power, Cox & Kings, Café Coffee Day, Essel group, Essar Power, Vardaraj Cement, Radius Developers, and Mantri Group.
Kapoor, an industry veteran, had floated Yes in 2003 and soon scaled it up. Banking sources said that the bank engaged in high-risk lending, providing advances to those who could not raise funds elsewhere. RBI began working on a moratorium a few days ago after it became clear that Yes Bank was unable to put in place a “credible proposal” for capital infusion.
ED arrests Kapoor over ‘kickback’
The Enforcement Directorate (ED) arrested Kapoor, early Sunday morning after 30 hours of questioning, capping two days of action that began with raids on the banker’s Samudra Mahal residence in Mumbai and curbs being imposed on withdrawals from the bank.
Kapoor, who faces allegations of money laundering and receiving £60 million in bribes from scam-tainted Dewan Housing Finance Corporation Ltd (DHFL), was produced at noon before judge SR Salunkhe of the holiday court. He was remanded to ED custody till March 11. “Considering the nature of offence and amount involved, the accused may take it as an opportunity to bring the truth before the investigating agency,” the court said.
Kapoor’s daughter Roshini was stopped at Mumbai airport from boarding a flight to London on Sunday. A lookout notice was earlier issued against his wife and three daughters for their alleged involvement in the Yes Bank loan fraud. Sources said the request to investigating agencies to prevent Roshini from leaving the country came from the income tax department.
ED, which has attached a dozen shell companies with real estate worth around £450 million, suspects that Kapoor’s family members were involved in controlling them. A property purchased in the UK is also under investigation, sources said.
Multiple agencies kept tabs on Kapoor since his return to India
Opposing the plea for his remand, Kapoor told the court he was unwell, but would not hinder the probe. “I've been sick since I lost my baby, Yes Bank…I promise I will cooperate. I swear by my wife, my three daughters.” Kapoor’s wife Bindu Kapoor was present in court. The court said it had examined medical papers and did not find sufficient grounds to deny his custody to the ED.
The arrest comes in the wake of CBI registering a criminal conspiracy and corruption case against DHLF, its promoter Kapil Wadhawan, Kapoor and a firm controlled by his family, DOIT Urban Ventures. According to CBI’s case, Kapoor entered into a criminal conspiracy and sanctioned a loan and debenture investment in DHFL worth £450 million in lieu of £60 million in kickbacks. The ED, which has attached a dozen shell companies with real estate worth £450 million, suspects Kapoor’s family members were involved in controlling them. A property purchased in the UK is also under investigation.
