In a “public statement”, the advocacy group Financial Accountability Network India, New Delhi, has said that the Yes Bank debacle exposes the Reserve Bank of India (RBI) “failure”, insisting on the need to hold those responsible for the debacle “accountable” and move towards “nationalising” private banks.
Endorsed by 30 academics and activists, the statement says that the responsibility for criminal negligence and debacle of Yes Bank “has to be fixed beyond Rana Kapoor”, who has just been arrested, and “all concerned need to be brought to book”, especially because there were clear signals of things to come.
Reserve Bank of India has once again failed the depositors of this country by putting Yes Bank under the restrictions for a month and putting the cap on withdrawals. At a time, when Indian banking sector is going through the toughest and longest crisis along with the slowdown in economy, RBI is continuously failing to safeguard the interest of the depositors as the highest regulating body and central bank of India.
After appointing Ravneet Gill as new CEO a year ago, RBI couldn’t come up with any solution to save the bank from going down. And this has come just months after RBI doing the same with Punjab and Maharashtra Cooperative (PMC) Bank and leaving the depositors panicked and worried.
Since last three years, Yes Bank has been making news, all for wrong reasons, for misreporting of accounts for two consecutive years in 2016 and 2017, series of resignations by board members and directors, internal clash between promoters, rising bad loans, non-disclosures, inadequate capital, inability to raise funds, weak compliances and wrong asset classification.
All this time, despite having knowledge, RBI didn’t intervene and take actions against persons responsible for this mismanagement. In September 2018, RBI asked Rana Kapoor, then MD and CEO, to leave the bank at the end of his tenure (January 2019). Ravneet Gill was appointed as new CEO of the bank in March 2019. And later, RBI also appointed former deputy governor R Gandhi as the additional director in Yes Bank’s board.
Interestingly, the bank kept on issuing fresh credit even when it was doing wrong on many fronts. The rise in the loan book from Rs 1,32,000 crore in 2017 to Rs 2,41,000 crore in 2019 clearly shows that RBI didn’t try to stop the bank from further deterioration.
The bank has issued credit to stressed companies most of which have gone bankrupt such as Anil Ambani Group, IL&FS, DHFL, Cox & Kings, Essel, Indiabulls Housing Finance, Jet Airways, CCD and Vodafone. Post the forced ouster of Rana Kapoor, the inaction of RBI is difficult to comprehend and it makes RBI complicit and responsible for the Yes Bank crisis.
In the past, RBI had put eleven public sector banks under prompt corrective action but didn’t do the same with Yes Bank. Now after letting the bank reach to a point of crisis where depositors and small businesses are worried about their savings and businesses, Enforcement Directorate is investigating role of the original promoter Rana Kapoor for diverting funds and money laundering.
After putting the bank under restrictions for one month, RBI issued a draft reconstruction scheme where State Bank of India (SBI) would invest and buy 49% stakes of the dying bank. SBI led consortium of banks including Life Insurance Corporation (LIC) will invest to save the private bank from collapsing.
But in the case of PMC bank where total deposits of the bank were only Rs 11,000 crore, government didn’t invest/infuse money to save the bank and till this day PMC Bank is under restrictions. Also, the same government promoting privatization of public sector in Economic Survey 2020, is now asking public sector banks to buy stakes of the private bank which is in crisis because of complete negligence by RBI in the first place.
Earlier in December 2019, SBI chairman Rajnish Kumar had denied speculations by saying that SBI doesn’t have adequate funds to acquire the debt ridden Yes Bank and suggested Kotak Mahindra as suitable bank to acquire the bank.
Later in World Economic Forum, Rajnish Kumar said Yes Bank won’t be allowed to fail. And now after putting the bank under the restrictions for a month, in reconstruction scheme of RBI, SBI is buying 49% stakes of the bank.
This change in from lack of adequate funds to buying 49% stake, shows that SBI has not showed willingness to invest (as RBI said in its reconstruction scheme) but it is being forced to invest in Yes Bank. According to the government private banks are performing better than public sector banks, yet public sector banks come to help every dying private bank.
The Yes bank debacle once again highlights the multiple crises of private sector banks in India. At a time when the Government is on a privatisation spree, this episode highlights that public finance and banking are the way forward, rather than private banks.
Financial Accountability Network India demands that the government should take criminal action against Yes Bank’s management responsible for this debacle. For the inactions and role played by RBI, the government should do an independent inquiry on RBI’s functioning role as regulator of banks.
And when public sector banks are the last resort to save any loss-making private bank, government must nationalize all the private banks in the country. To avert repetition of such crisis, Reserve Bank of India should ask scheduled commercial banks to focus on retail banking and Development Financial Institutions should be revived to provide credit for large developmental projects.