And the ups and downs that come with this ride.
What Happened?
- RBI superseded the board of Yes Bank and placed the bank under moratorium for a month and capped the withdrawal limit to ₹50,000 per month. The RBI has also put out a draft reconstruction plan for the bank. As per the plan, SBI will be buying up to 49% stake in Yes Bank at a price not less than ₹10.
- The Enforcement Directorate (ED) has arrested Rana Kapoor and the Central Bureau of Investigation (CBI) has filed a first information report (FIR) against him, his wife Bindu and three daughters.
Why This Happened?
Because Rana Kapoor and his family has been accused of receiving ₹600 crore in kickbacks from DHFL.
CBI has stated that Yes Bank has infused ₹3,700 crore in short term debentures of DHFL during the month of April to June 2018. Simultaneously, Kapil Wadhawan paid a kickback of ₹600 crore to Kapoor and his family members in the grab of a builder loan of ₹600 crore given by DHFL to RAB, which is a Kapoor family firm. CBI also said that the ₹3,700 crore was not repaid by DHFL.
During the same period, a loan of ₹750 crore was also sanctioned by the lender to RKW developers, which was also a DHFL company. Dheeraj Wadhawan is the director of RKW developers’ Bandra Reclamation project. CBI said that the entire amount was siphoned off by Kapil Wadhawan since it was transferred to RKW without making any investment in the Bandra Reclamation project for which the loan was actually sanctioned.
How This All Started?
- Over the last decade, Yes Bank grew exponentially and its loan book rose to ₹3 lakh crore. In order to expand operations, the banks offered loans to those companies which couldn’t get credit elsewhere. However, this growth strategy came with a lot of risk as well.
- Yes Bank had given loans to Cafe Coffee Day, CG Power, Jet Airways, DHFL and IL&FS. Yes, you’re right if you’re thinking that all of these companies that Yes Bank gave loans to, have gotten into huge troubles in the past.
- As per an RBI report, Yes Bank underreported bad loans by ₹4,177 crore for FY16 and this underreporting helped the bank to inflate its profit by 22%.
- After RBI refused to permit an extension to Rana Kapoor as CEO and MD because of “highly irregular credit management practices, serious deficiencies in governance and a poor compliance culture”, panic spread amid investors.
- For the past 6 months, the lender’s new CEO, Ravneet Gill and a board that included an RBI appointee tried their best to raise fresh funds from new investors but they failed to accomplish it.
The Impact On Yes Bank’s Shares
From trading above ₹230 per share levels in March 2019, to have come down to around ₹20 per share level, the stock eroded over 90% of its value in a year.
In conclusion, this crisis will not last long as the stake acquisition by SBI will contain this mess to a larger extent. The interest of shareholders will be protected by the RBI and the Central Bank has done it well in the PMC Bank case as well.
The actual question which comes to our mind now is why didn’t RBI contain this problem long back when it realised that something fishy was going on in the bank? Would the situation be different if RBI reacted way back?
