YES BANK FRAUD – SCAM 2020

Yes Bank fraud - Sakshi Kale

INTRODUCTION

YES, Bank is a private sector bank and was founded by Rana Kapoor and Ashok Kapoor, and before its downfall, it was India’s fifth largest private bank in the country. Recently on March 5, 2020, the central bank that is Reserve Bank of India placed YES bank under moratorium, and later Prashant Kumar was appointed as an administrator who was then the chief financial officer and deputy managing director at State Bank of India (SBI). According to the terms of the moratorium, the YES bank customers cannot make withdrawals of more than 50,000 per account. RBI to reconstruct the capital drained in the bank also announced a draft named ‘Scheme of Reconstruction’.

YES Bank Limited operated under these three entities that are:

  • YES Assets Management Services,
  • YES Capital and
  • YES Bank.

A very unique feature of YES bank was that it primarily focused on corporate banking (providing services to the corporate sector) and not on retail banking (that is providing services to the general public). It was also once referred to as the “last resort” bank for cash dubbed corporates and corporate companies that were in desperate need of funds relied on YES Bank for loans and advances and therefore around 20 companies had YES bank as their sole partner for UPI transactions.

YES bank was established back in 2004 and after 2008 it was observed that the bank started aggressively giving loans to high-stress companies. High-stress companies are those that have a low probability of returning back their loans.  This resulted in the advances of the bank increased by 25 fold between the financial year of 2008-2019 and suddenly increased to 334% between the financial year of 2014-2019. As we can look in their loan book, here we can see that during the financial year 2008-2019 the figures went from 9430 crores to 2,41,500 crore and between the financial year 2014 to 2019 the figures are 55,633 crores  to 2,41,500, it is an increase of 334 %

The Non- Performing Assets are NPA that is when a loan is not returned after a fixed number f days; it is calculated after ninety (90) days. YES banks gross NPA % had reached 7.39 % in September 2019 that was highest amongst the other comparable private banks and as NPA % increased at the same time lang amounts of deposits were withdrawn by the customers that resulted in credit deposit ratio crossing 100%.  This basically concludes that the bank had lent more than it had received. The profit percentage also became low. Banks work in a way that it receives money as deposits and lends money as loans and that is what gets them profit. In this case, the loan amount is exceeding the deposits, which led to poor profitability and this was determined by the YES bank. Also, their share and stock prices fell dramatically.

In the year 2017 RBI did their evaluation to determine the factor of risk. This evaluation is termed as the Asset Quality Rating. The RBI noted that the NPA % stated by YES Bank was an understatement of the actual estimate made by RBI. This was the first irregularity that the RBI noted.

This all had consequences and that all started in 2018 when RBI asked Rana Kapoor to quit from the post of CEO of YES bank for breach of confidentiality and then in November 2018 a chairman and 2 independent directors of YES bank resigned and a year later in November 2019 Rana Kapoor sold his shares of 142 crores which were suspicious as Rana Kapoor once stated that these shares would be his asset that he would cherish and also that these shares were to be distributed amongst his children.

All of this led to the Enforcement Director (ED) arresting Rana Kapoor on the 8th of March 2020 for the charges of the accusation of money laundering over a sum of RS.4, 300 crores.

WHO IS RANA KAPOOR?

He was the CEO of YES Bank and was born and bought up in Delhi in the year 1957. He was a foreign banker. After he got his license, he established YES bank. He made YES bank more focused on the corporate companies that needed funding and not more on the general public. In September 2018, he was asked to quit and he was replaced by Ravneet Gill

Rana Kapoor was charged with an accusation of money laundering over a sum of RS.4,300 crores and Fraud. The ED- Enforcement director with the CBI filed a prosecution complaint (charge sheet) against Rana Kapoor, CEO of YES Bank, and 11 others at the session’s court, Mumbai.

WHAT IS THE CASE AGAINST HIM?

Central Bureau of Investigation didn’t have the approval to prosecute Rana Kapoor under the Prevention of Corruption (PC) Act. The Central Bureau of Investigation then filed a charge sheet against Kapoor under the Prevention of Corruption Act and Indian Penal Code but then The PC Act was invoked because Kapoor was the CEO of YES bank and came under the ambit of a `public servant’ and had an advantage as in IPC public servants have the immunity. The offenses against all these accused were punishable under 

  1. Section 420(cheating) Whoever cheats and thereby dishonestly induces the person deceived to deliver any property to any person, or to make, alter or destroy the whole or any part of valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine.[1]
  2. section 409 (criminal breach of trust) of IPCWhoever, being in any manner entrusted with property, or with any dominion over the property in his capacity of a public servant or in the way of his business as a banker, merchant, factor, broker, attorney or agent, commits criminal breach of trust in respect of that property, shall be punished with imprisonment for life, or with imprisonment of either description for a term which may extend to ten years, and shall also be liable to fine.[2]

CBI registered the case against Rana Kapoor an others for Cheating, Fraud, Criminal Conspiracy on March 7.the charge sheet also had the names of DHFL, its promoters Wadhawans, DOiT Urban Ventures Ltd (DUVPL), these all were owned by Rana Kapoor’s daughters who are also in the list of accused in the  YES BANK SCAM because According to CBI, Rana Kapoor during his tenure in YES bank, extended credit facilities to DHFL through YES Bank and in return took monetary benefits for himself and his family. CBI in his FIR mentioned that the scam started when Yes Bank invested Rs 3,700 crore in DHFL and Rana Kapoor and his family were paid by the Wadhawan’sin the form of loans. The ED observed and noted some irregular distribution of bank loans to corporate entities misusing his position and creating other companies for laundering of money. The complaint also named his wife, three daughters, and three firms that were controlled by him and his family namely Morgan Credits, RAB Enterprises (India), and Doit Urban Ventures.[3]

Recently, Roshni Kapoor was summoned by the court last month in connection with the case. She is one of the eight accused named in the charge sheet filed in the case by the CBI.[4]

Author(s) Name: Sakshi Kale (New Law College, Bhartiya Vidyapeeth, Pune)

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[1]https://devgan.in/ipc/index.php?q=409&a=1

[2]https://devgan.in/ipc/index.php?q=420&a=1

[3]https://www.business-standard.com/about/who-is-rana-kapoor

[4]https://economictimes.indiatimes.com/topic/Rana-Kapoor