What is the Yes Bank Scam?

Yes Bank Scam: A Case of Corporate Fraud and Mismanagement

Introduction

Yes Bank, one of the largest and fastest-growing private sector banks in India, was hit by a major financial crisis in 2020, which exposed its involvement in various cases of corporate fraud, mismanagement, and regulatory violations. The bank’s founder and former CEO, Rana Kapoor, was arrested and charged with money laundering, corruption, and insider trading, among other offences. The bank’s financial position deteriorated rapidly due to its exposure to bad loans, especially to stressed sectors like real estate, infrastructure, and non-banking financial companies (NBFCs). The Reserve Bank of India (RBI) intervened and placed the bank under a moratorium, restricting its operations and imposing a withdrawal limit for its customers. The RBI also superseded the bank’s board and appointed an administrator to oversee its restructuring. A rescue plan was devised by the RBI and the government, involving an infusion of capital by a consortium of banks and financial institutions led by the State Bank of India (SBI). The bank resumed its normal operations in March 2020 after the completion of the reconstruction scheme.

What was the Yes Bank scam?

The Yes Bank scam involved the bank investing Rs. 3,700 crores in short-term debentures of Dewan Housing Finance Corporation Ltd (DHFL) in exchange for loans to DoIT Urban Ventures, owned by Rana Kapoor and his family members. The Enforcement Directorate (ED) filed a charge sheet against Rana Kapoor for illegal gratification of Rs. 5,050 crores and providing inside loans to corporate entities. The scam also involved millions of rupees in application funding, with individuals opening multiple DEMAT accounts and applying for shares from BENAMI accounts. The Central Bureau of Investigation (CBI) has registered an FIR against Gautam Thapar and others for the alleged diversion of over Rs. 466 crore in Yes Bank during 2017-19. The ED has alleged that Rana Kapoor and DHFL promoters siphoned off funds worth Rs. 5,050 crores through suspicious transactions.

What were the consequences of the scam?

The scam had severe consequences for the bank, its customers, its shareholders, and the banking sector as a whole. Some of the consequences were:

• The bank’s share price plummeted from over Rs. 400 in August 2018 to less than Rs. 6 in March 2020, wiping out its market value by over 98%.
• The bank’s deposits declined by over Rs. 70,000 crore between September 2019 and March 2020, as customers lost confidence in the bank and withdrew their money.
• The bank’s gross non-performing assets (NPAs) rose from 1.6% in March 2019 to 16.8% in March 2020, indicating its poor asset quality and credit risk management.
• The bank reported a net loss of Rs. 16,418 crore for the financial year 2019-20, compared to a net profit of Rs. 1,720 crore in the previous year.
• The bank’s customers faced hardship and inconvenience due to the withdrawal limit of Rs. 50,000 imposed by the RBI during the moratorium period.
• The bank’s shareholders suffered a huge dilution of their stake due to the reconstruction scheme, which reduced their holding to 25% of their original value.
• The banking sector witnessed a loss of trust and credibility due to the failure of one of its prominent players and the regulatory lapses that allowed it to happen.

What are the legal remedies for the scam?

The scam has been investigated by various agencies like the ED, CBI, RBI, SEBI, SFIO, etc., who have taken various actions against the accused and recovered some assets from them. Some of the legal remedies for the scam are:

• Filing criminal cases against Rana Kapoor and others under various laws like the Prevention of Money Laundering Act (PMLA), Prevention of Corruption Act (PCA), Indian Penal Code (IPC), etc., for offences like money laundering, corruption, cheating, forgery, etc.
• Filing civil suits against Rana Kapoor and others for recovery of dues, damages, compensation, etc., by various stakeholders like lenders, investors, depositors, etc.
• Filing complaints with regulatory authorities like RBI, SEBI, etc., for violations of norms like fair practices code, corporate governance standards, disclosure requirements, etc., by Yes Bank and its officials.
• Seeking legal advice from lawyers or legal aid organizations to know their rights and options regarding their deposits, investments, loans, etc., with Yes Bank.

How can such scams be prevented in the future?

Such scams can be prevented in the future by taking some preventive and corrective measures by various stakeholders like banks, regulators, auditors, customers, etc. Some of these measures are:

• Strengthening the regulatory oversight and supervision of banks by RBI and other authorities, ensuring compliance with prudential norms, risk management frameworks, reporting standards, etc.
• Enhancing the corporate governance and accountability of banks by appointing independent and qualified directors, auditors, and committees, ensuring transparency and disclosure of financial and operational information, etc.
• Improving the audit and vigilance mechanisms of banks by conducting regular and rigorous audits, both internal and external, detecting and reporting any irregularities or frauds, etc.
• Educating and empowering the customers of banks by creating awareness about their rights and responsibilities, providing them with timely and accurate information about their deposits, investments, loans, etc., enabling them to make informed decisions, etc.

Conclusion

Yes Bank scam was a case of corporate fraud and mismanagement that exposed the vulnerabilities and loopholes in the banking sector. The scam caused huge losses and hardships for the bank, its customers, its shareholders, and the banking sector. The scam has been investigated by various agencies and legal actions have been taken against the accused. The scam has also prompted some reforms and measures to prevent such scams in the future.