Tuesday, March 10, 2020

sad saga of Yes Bank ... how much would a painting fetch ??


There are so many banks – Indian Bank and Indian Overseas Bank have their head offices in the city of Chennai.   On First Line beach (Rajaji salai) nearer Indian Bank HO – is a  nondescript lane .. .. ..

Every one of us know and use these words… ‘Yes and No’ – the English words for expressing the affirmative and the negative respectively in modern English. The words yes and no are not easily classified into any of the eight conventional parts of speech. Although sometimes classified as interjections, they do not qualify as such, and they are not adverbs. ………… these words were printed in the ATM of Yes Bank… 

Here is what you would find for Yes in a dictionary.
YES :—adv.

1. (used to express affirmation or assent or to mark the addition of something emphasizing and amplifying a previous statement): Do you want that? Yes, I do.
2. (used to express an emphatic contradiction of a previously negative statement or command): Don't do that! Oh, yes I will!
3. (used, usually interrogatively, to express hesitation, uncertainty, curiosity, etc.): “Yes?” he said as he opened the door. That was a marvelous show! Yes?
4. (used to express polite or minimal interest or attention.)
—Noun.    an affirmative reply.

The first service that most people become familiar with in terms of a bank is a savings account.  For many the visit to a bank starts with opening of salary account – when my grandfather passed away, my uncle opened SB accounts in Bank of Madura in the names of all grand sons/daughters.  The bank functioned at the same premises where Mahakavi Bharathiyar lived.   As one keeps money in SB account, the Bank provides a low interest for the value kept and is flexible to be withdrawn.

Banks work by paying its customers to lend them money. When a person deposits money into their bank account, the bank can then lend other people that money. The depositing customer gains a small amount of money in return (interest on savings), and the lending customer pays a larger amount of money to the bank in return (interest on loans). To make money for itself, the bank keeps the difference. In USA, it was a joke that bank business simply is  3-6-3 business; borrow money at 3%, lend it at 6%, and be at the golf course by 3 pm. Some banks also charged a monthly fee to customers for maintaining a basic account, but most daily transactions are free.

While bank is considered ‘risk-free’ or minimum risk investment – meaning that one would get low returns but there is no risk – well, life is not all that easy – and there is risk that the entire money could vanish ! or one may not be able to access one’s own savings at the time needed. Cannot avoid thinking – what would have been the response of Social media and politicians if the same person who fought a painting for a fortune (but is termed as a business transaction) – would have had a selfie taken with a prominent ruling party leader – then we would have heard the din of him being closely associated with the party in power and hence allowed scot-free !!

Bank collapse is perhaps not new ! ~ though very few and far.  The street that was referred as closer to Indian Bank HQ in Rajaji salai is Arbuthnot Street – in 1906,  the gates of Arbuthnot and Company, First Line Beach, carried the announcement that the company had suspended payment till further notice. It was an ignominous end to an institution that had been one of the most successful in Madras for over a hundred years.
This  post is on the travails of Yes Bank depositors.  Yes Bank faces a crisis of non-performing assets, i.e. loans that have either gone bad or where repayments have been delayed for too long. Partly due to this, Yes Bank's capital eroded. For the last several months, the bank has been hunting for cash in the form of fresh investment. The hunt, however, came up empty. Apart from this, Yes Bank also faced governance issues. Yes bank underreported NPAs to Rs 3,277 crore in 2018-19. The report also says that the bank's management misled the RBI by indicating to the central bank that talks with investors on pumping in equity were likely to be successful.

With lot of things under the carpet, thousands of depositors, investors were taken by surprise when RBI declared a  moratorium on   Global Trust Bank, a new-generation private bank, on July 24th 2004 under the inept Congress-led UPA regime of Manmohan Singh. Barely 48 hours later, it was announced that the beleaguered bank would be summarily merged with the publicly-owned Oriental Bank of Commerce (OBC). IN its  eagerness to seem proactive, the Congress regime paid scant heed to financials. The advances made by OBC in 2003-04 amounted to Rs.19,861 crore, compared to GTB's Rs.3,276 crore; OBC made a net profit of Rs.686 crore, compared to a loss of Rs.272 crore registered by GTB in 2003-04. While OBC had no non-performing assets, GTB's NPAs accounted for almost 20% of its assets.

Now comes the case of ‘Yes Bank’ -  investments worth over Rs 2,000 crore, 44 expensive paintings and a dozen alleged shell firms are at the heart of ED's investigations against Yes Bank founder Rana Kapoor who was arrested by the agency on Sunday on money laundering charges, officials said.  The agency, official sources said, has also recovered documents that show some assets of the Kapoor family in London and the source of funds for their acquisition is now being investigated.  A special holiday court in Mumbai sent Kapoor to ED custody till March 11. The central probe agency that began action against the banker by raiding his upscale residence in south Mumbai on Friday is primarily investigating Kapoor, his wife and three daughters over a Rs 600 crore fund received by a firm allegedly "controlled" by them from an entity linked to the scam-hit Dewan Housing Finance Limited (DHFL).

The Kapoors linked firm, DoIT Urban Ventures (India) Pvt Ltd, is alleged to have received the funds when Yes Bank had an exposure of more than Rs 3,000 crore loans to DHFL, already being probed for purported financial irregularities and diversion of funds. – but for the poor individuals there is the  withdrawal cap of 50,000 on deposits which is expected to be  lifted by 23 March, at least 11 days ahead of the 3 April deadline set by the Central Bank, reports sources.  The 50,000 cap is the aggregate limit across all accountssavings, term or currentthat the Reserve Bank of India (RBI) placed on Yes Bank customers on 5 March when it put the private lender under a moratorium. It subsequently asked SBI to take a 49% stake in the bank co-founded by Rana Kapoor to ward off its collapse that would have impacted the broader financial system.

On that ill-fated day in Nov 2008 – when Mumbai was held hostage by Pak trained terrorists, Ashok Kapur, the non-executive chairman of  Yes Bank was killed by terrorists in the Trident-Oberoi hotel complex in Mumbai.  Kapur had gone for dinner with his wife at the hotel’s Kandahar restaurant in the 19th floor of the hotel when shooting broke out. In the shooting, the couple were separated and his wife was led out by security officers with a group of other guests. The news of his death came  later.  The private sector  now in news ‘Yes Bank’ was founded by Ashok Kapur and Rana Kapoor, with the duo holding a collective financial stake of 27.16%. The Bank has received significant national and international recognitions.  

The Congress acknowledged on Sunday that party leader Priyanka Gandhi Vadra had sold a portrait of her late father Rajiv Gandhi by MF Husain to Yes Bank  founder Rana Kapoor, who is now under arrest, but asserted that the entire amount was received through cheque and duly disclosed in Vadra’s income tax returns.

The bank had not been performing well despite support and directives of a famous ex-politician  !  -  In a rare case of Reserve Bank of India superseding the board of a commercial bank in recent history, the central bank has moved in to take charge of new generation private bank Yes Bank. Interestingly, the bank was set up by top-notch professionals.  The financial position of Yes Bank has undergone a steady decline over the last few years because of its inability to raise capital to address potential loan losses and resultant downgrades, triggering invocation of bond covenants by investors, and withdrawal of deposits. The bank was making losses and inadequate profits in the last four quarters.

Sad for the investors !

With regards – S. Sampathkumar
9th Mar 2020.

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