The YES Bank scam

As we know a banking system is a group or network of institutions that provide financial

services to the public. In the simplest form, a bank main function is to collect a
Deposits from people and provide loans to people. Since the bank doesn't loan out money
from its pocket, it uses the funds collected by the deposits made into the bank.

In a positive situation where everything works as it should, the bank would receive the
money back which they loaned out and the bank then easily pay back its depositors. But,
what happens when nothing works as it supposed to?
When banks are not able to get their money back from the debtors, these debtors turn into
Non-performing assets, which simply means that the debt is unlikely to be repaid by the
borrower in full.

When did the crisis of YES BANK start?

Yes bank was incorporated in 2004, jointly owned by Rana Kapoor and Ashok Kapur. Later in
2008, Ashok Kapur was killed in the terrorist attack also known as 26/11 which took place in
Mumbai, after which Rana Kapoor took full control of the bank. Under the control of Rana
Kapoor, the bank started handing out loans very aggressively at high interest rates to people
who had a very low chance of repaying them, in other words, Rana Kapoor never refused a
loan to anyone, he started to hand out loans to everyone even if they were financially
stressed few examples of such companies were Dewan Housing Finance Corp. Ltd.,
Infrastructure Leasing and Financial Services, Anil Ambani’s Reliance group, the Zee group,
and Essel group.

In 2015, under Raghuram Rajan, RBI realised that lots of banks in India were hiding
NPAs(Non-Performing Assets) and therefore conducted a special inspection which was
called AQR (Asset quality review) for verifying the qualitative and quantitative factors
determined to identify stressed loans. Yes bank still didn’t reveal its actual NPAs figures to
RBI.
In a report dated 7 July 2015, a financial service firm by the name of UBS, already pointed
out that according to them, YES bank had the strongest growth in loans to potential stressed
companies, in other words, Yes bank had a huge amount of NPAs as far back as 2015 and
.
advised people to sell their shares of the bank
By the end of 2017 RBI saw many red flags in YES bank and started to monitor them
thoroughly.

The collapse of Yes bank

In 2018, Infrastructure leasing and financial service, Dewan Housing Finance, Anil Ambani’s
Reliance group and other financially stressed companies which were debtors of Yes bank
started to collapse financially, therefore, were not in a position to repay the loan taken by
them. For the first time, willingly, Yes bank reported an NPA worth Rs 3277 cr.
In September 2018, RBI ordered Rana Kapoor would have to vacant the chair of CEO
If Yes bank is to be saved. Later in January 2019, Rana Kapoor ceased to be the CEO of the
YES bank. In November 2018, a chairman and two independent directors of the bank also
resigned. Due to this the rating of the bank went downhill. A rating firm by the name CARE
RATING accorded a very bad rating to yes bank, another rating firm, MOODYS, downgraded
the YES bank’s outlook from stable to negative.

RBI’s immediate actions

RBI’s immediate action after finding out that the problem of YES bank was not something
small. RBI appointed Rama Subramaniam Gandhi Deputy Governor of RBI from 2014 to
2017, to the board of YES bank. RBI also appointed Ravneet Gill as the CEO of YES bank.
Later Ravneet Gill disclosed the fact to the RBI the actual amount of NPA was much higher
than what was reported. After which, RBI imposed various fines on YES bank for violation of
many rules.
RBI instructed Yes bank to come up with a revival plan for themselves as RBI first let the
bank which is in crisis to create a plan for its revival, in which Yes bank failed. Meanwhile,
the news of YES bank crumbling down spread throughout the mass and a huge number of
people started to rush to YES bank to withdraw their money (this is known as bank rush).
Yes bank was in no condition to return the deposited money of people as its
Loans were way of to the roof, from Rs 55,000 cr in the fiscal year 2014 to Rs 2.41 trillion in
the fiscal year 2019. Seeing the sudden bank rush, RBI knew if nothing would be done the
bank will collapse and people will lose their faith in the banking system. RBI immediately
tool the control of YES bank in their own hands. On 6 March 2020, RBI put YES bank under
Moratorium. RBI took over control of Yes bank and for 30 days worked for its revival plan,
RBI also appointed Prashant Kumar, SBI’s former chief financial officer as YES bank’s
administrator, and to control bank rush RBI limited withdrawals to Rs 50000.

RBI’s Revival plan for YES BANK

Government cannot let any bank fail because it comes with many problems including social
unrest. If people have a lot of money deposited in any bank and that bank fails then how to
people will react cannot be comprehended.
RBI’s revival plan for the yes bank was as follow
 SBI bought 49% of the shares of yes bank at a face value of Rs 10 and cannot sell
more than 23% of the shares for the coming 3 years.
 RBI lent Rs 10,000 crore to Yes bank
 All the employees continued to work at the same pay for one year
 AT1 bonds worth Rs 10,800 crore were wiped out to bring the capital back in the
bank
 ICICI bank took 7.97% stakes in YES bank

Rana Kapoor's frauds

Enforcement Directorate (ED) registered a case against Rana Kapoor on 8 March 2020,
under the prevention of money laundering Act. CBI also charged Rana Kapoor and his family
members with bribery and money- laundering.
According to ED Rana Kapoor and his family got benefits worth Rs 43 billion through
companies controlled by the family as kickbacks for sanctioning huge loans through Yes
bank. He was also accused of taking bribes to go easy on few corporate groups that turned
into NPAs.
Rana Kapoor was also alleged for embezzlement of over $3 billion, in which he received over
$100 million as kickbacks through bogus loans extended by yes bank to DHFL. These
kickbacks were used to purchase expensive properties all over the country in the name of
his wife Bindu Kapoor and daughter Roshni Kapoor.
The ED charged that Rana Kapoor had acted as Prima donna, chief conspirator and the
architect of a scam to create wealth for himself and his family.

Conclusion
The government will is