A Year After Yes Bank Rescue, Cases Against Co-Founder Rana Kapoor Build
Spread over 77 acres of flat land near the Kharghar hill ranges is the 10-year-old Taloja jail in Navi Mumbai’s Raigarh district. From gangsters like Abu Salem and Arun Gawli to violent criminals such as Emile Jerome Mathew have served time here.
It is at this facility that Rana Kapoor, one of India’s most storied entrepreneur-bankers, has spent the past one year.
It was exactly a year ago, on March 5, 2020, that Yes Bank, the lender co-founded by Kapoor, was put under a moratorium by the Reserve Bank of India. It was the largest private bank failure that India had seen. Within days of the bank’s board and management being superseded, Kapoor, who had stepped down in January 2019, was taken into judicial custody.
He remains there as investigations continue.
According to a person with knowledge of Kapoor’s case, he approached the courts for bail on medical grounds, especially during the pandemic. Bail was denied but jail authorities were asked by courts to ensure that Kapoor is safe. Kapoor remains worried for his safety as the jail is not geared toward protecting people with co-morbidities against the Covid-19 pandemic, the person quoted above said.
Kapoor’s advocate Subhash Jadhav did not respond to queries mailed on Feb. 28. Abad Ponda, a Mumbai-based criminal lawyer who has been representing Kapoor in hearings, declined to comment.
What Is Kapoor Being Accused Of?
At present, there are four parallel cases running against Kapoor.
The DHFL Case
The first of these pertains to alleged kickbacks received in return for lending to Dewan Housing Finance Ltd. and related entities.
According to an order from the Additional Sessions Court of Mumbai in May 2020, the Enforcement Directorate had alleged that Kapoor and his family had enriched themselves to the tune of Rs 5,000 crore through kickbacks received from DHFL.
“It is alleged that accused No.1 (Kapoor) has received several hundred crore rupees in kickbacks over bogus loans extended by Yes Bank to DHFL Company beneficially owned by Mr. Kapil Wadhwan & Dheeraj Wadhwan and group companies of DHFL. It is alleged that accused No.1 has misused those kickback amounts for purchasing several properties in the names of his family members,” the sessions court order said.
The ED is seeking conviction under the Prevention of Money Laundering Act or PMLA.
According to the person quoted above, Kapoor has defended himself by saying that there were no kickbacks and all transactions between the bank and DHFL were bona fide.
The ED has also alleged that Kapoor used his position to have Yes Bank subscribe to Rs 3,700 crore worth of debentures issued by DHFL, against which, the housing finance company provided a Rs 600-crore builder loan to DOIT Urban Ventures. The loan was granted to the company without adequate collateral, the ED alleges. Kapoor’s daughters own DOIT Urban Ventures, which does not have the business operations to be able to service this loan, the agency said.
Against these allegations, Kapoor and his family have stated that the loan received from DHFL was a genuine financial transaction and that DOIT Urban Ventures had been repaying interest on these dues regularly.
Similarly, money was routed through RAB Ventures, where Kapoor’s wife is a promoter director. Despite having no operations, the company has been making large investments in subsidiaries through funds received via kickbacks, the ED has alleged.
The Cox & Kings Case
In October 2020, the ED also filed a case of criminal conspiracy and fraud against Ajay Ajit Peter Kerkar, chief executive of travel firm Cox & Kings Ltd., for defrauding Kotak Mahindra Bank Ltd., IndusInd Bank Ltd. and Yes Bank. Apart from Kerkar, the ED has named Kapoor and 12 others as accused in the case, according to a Mumbai sessions court order of January 2021.
The ED alleges that Kapoor approved a Rs 3,642-crore loan to Cox & Kings without conducting proper due diligence, after he held private meetings with Kerkar and other officials of the company. The ED has not alleged any kickbacks were received by Kapoor in this case.
The HDIL Case
Earlier this year, the ED also alleged that Kapoor had colluded with Housing Development and Infrastructure Ltd. promoters Rakesh and Sarang Wadhawan to extend loans to Mack Star Marketing — money which was then siphoned off. Mack Star Marketing is a joint venture between the HDIL promoters and Delhi-based Ocean Deity Investment Holdings, a former arm of DE Shaw.
According to a person with direct knowledge of the developments, the ED has alleged that loans worth Rs 200 crore were sanctioned to Mack Star by Yes Bank, without the knowledge of Ocean Deity Investment. The funds were then transferred to other HDIL group companies and used to repay other Yes Bank loans. The evergreening of HDIL group loans was done in collusion with Kapoor, the investigative agency has alleged.
The Avantha Group Case
The CBI has booked Kapoor and his wife for allegedly receiving a residential property worth Rs 378 crore, owned by Avantha Group’s Gautam Thapar, against Rs 400 crore that Thapar borrowed from Yes Bank. The loans were sanctioned without any reasonable basis, according to the FIR filed by the CBI on March 12, 2020. The ownership of the property, on Delhi’s posh Amrita Shergil Marg, was transferred to Bliss Abode Private Ltd., which is owned by Kapoor’s wife.
“lt was essentially a sham agreement entered into with an intention to defraud and cheat Yes Bank Ltd. for justifying above loan of Rs. 400 crore to ARL (Avantha Realty Ltd.) for the purpose of acquiring property as above,” the FIR says.
Far From Over
Kapoor’s worries may not end with these four cases as investigators are still sifting through loan approvals by Yes Bank during Kapoor’s tenure.
The bank is currently in the process of completing a forensic audit of all non-performing assets worth Rs 50 crore and above, to find any signs of impropriety, Yes Bank’s new CEO, Prashant Kumar, told BloombergQuint. Kumar was appointed CEO after a reconstruction scheme for the bank was approved.
“We are trying to see if there was any dilution of underwriting standards while approving these loans and also if there has been any misappropriation of funds extended to the borrower. We have appointed multiple external agencies to review these loans,” said Kumar, adding that the bank would approach investigative agencies if any impropriety is found in the conduct of current or former employees of Yes Bank.
A consultant at one of these external agencies, speaking on the condition of anonymity, said the forensic audit stretches across 40-45 corporate groups, with outstanding exposures of around Rs 40,000 crore to Yes Bank. The bank’s outstanding corporate advances stood at Rs 88,634 crore as of Dec. 31, according to the last available investor presentation.
The nature of the existing and potential cases may mean that Kapoor has a long battle on his hands.
“The government is letting the investigative agencies and the judicial system do their job without any sense of vindictiveness. Sometimes these things take a while to conclude because at times the litigant is seeking more time or the accused is not cooperating. But that is the nature of the system, you have to let it play out,” said HP Ranina, senior advocate of the Supreme Court.
The fact that the Prevention of Money Laundering Act is being used in cases against Kapoor may also add to the complexity of the cases.
Majeed Memon, another senior criminal lawyer, said that the PMLA is a very tough piece of legislation and you don’t achieve much through it. “If the accused is accepting his deeds and is willing to repay at least a part of the dues, this should be a reasonable solution to situations like this, Memon said. “Rather than spending large resources on convicting the accused, the true spirit of justice would be in ensuring that the victims of these crimes receive some compensation,” said Memon, adding that the frequent use of the PMLA, like in Kapoor’s case, is not good for the economy. Central investigative agencies should rather focus on recovering the dues than spending time trying to get a conviction, he said.
The Post-Kapoor Yes Bank
While Kapoor’s life remains stuck in the past fighting the cases brought against him, the bank he co-founded is trying to look to the future.
A key focus for the lender over the past year to restore the trust of depositors.
According to Kumar, this was the first and possibly the biggest challenge for the success of the rescue efforts.
“Everyone from the top, including me, to every relationship manager had to reach out to customers. We also had to ensure that once the moratorium is removed there is adequate cash available with the bank to ensure that withdrawals do not become a burden,” Kumar said. Once the rescue proposal became common knowledge, customers gained a lot of confidence from SBI’s involvement, he said.
From outstanding deposits worth Rs 2.27 lakh crore as of March 31, 2019, Yes Bank’s deposit base halved to Rs 1.05 lakh crore at the end of financial year 2019-20, when the rescue plan was being implemented. At the end of the third quarter of the current fiscal year, outstanding deposits stood at Rs 1.46 lakh crore.
Strengthening the underwriting process is the other priority.
According to Kumar, the risk department at Yes Bank was so compromised that the risk parameters were often fixed to meet the loan document, rather than the other way around. “We immediately separated risk from the lending business and ensured that the bank's loan underwriting standards are not compromised. We also made personnel changes to make sure that this problem does not arise again,” Kumar said.
Alongside fixing operational challenges, Yes Bank has been building up its capital base. It raised Rs 15,000 crore through a follow-on public offer in July 2020. The fund raise, according to Kumar, really stabilised the ship at Yes Bank. The board has approved another Rs 10,000 crore in fund raising.
We believe that the bank is now on firm footing after the governance concerns have been taken care of and the capital shortfall is plugged. We feel that we can now look at strong growth with appropriate risk protocols in place.Prashant Kumar, MD and CEO, Yes Bank