Public Statement | March 9, 2020
Yes Bank Debacle exposes RBI’s Failure
Time to Hold the Responsible Accountable & Nationalise Private Banks
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 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.
We note the arrest of Rana Kapoor yesterday and his remanding to the custody of Enforcement Directorate till March 11. The responsibility for this criminal negligence and debacle however has to be fixed beyond Rana Kapoor and all concerned need to be brought to book.
After putting the bank under restrictions for one month, RBI issued a draft reconstruction scheme where SBI would invest and buy 49% stakes of the dying bank. SBI led consortium of banks including 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. For a negligence of this level, RBI and the government should be held accountable. Finance Minister in her statement said RBI was monitoring Yes Bank since 2017 and yet it allowed to worsen the situation to a point where depositors are not allowed to withdraw more than Rs 50,000.
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.
Financial Accountability Network India
1. Anil Chaudhary, PEACE, New Delhi.
2. Anil Tharayath Varghese, Delhi Forum
3. Anuradha Munshi, Working Group on International Financial Institutions
4. Awadhesh Kumar, Srijan Lokhit Samiti, Madhya Pradesh
5. Bargi Bandh Visthapit Evam Parbhavit Sangh, Madhya Pradesh
6. Bharat Patel, Machimar Adhikar Sangharsh Sangathan, Gujarat
7. Devidas Tuljapurkar, Joint Secretary, All India Bank Employees Association
8. Gautam Mody, New Trade Union Initiative
9. Joe Athialy, Centre for Financial Accountability, New Delhi
10. K Sukumaran, Advocate Gudalur, The Nilgiris
11. Krishnakant, Paryavaran Suraksha Samini
12. Leo Saldanha, Environment Support Group, Bengaluru
13. M.G. Devasahayam, People Firist
14. Matu Jan Sangathan, Uttarakhand
15. Mecanzy Dabre, National Hawkers Federation
16. Pani Haq Samiti, Mumbai
17. Pervin Jehangir, Narmada Solidarity Group, Mumbai
18. Prafulla Samanthra, Lokshakti Abhiyan, Odisha
19. Rajendra Ravi, Institute for Democracy and Sustainability, New Delhi
20. Rajkumar Sinha, Chutka Parmanu Virodhi Sagarsh Samiti, Madhya Pradesh
21. Ram Wangkheirakpam, Indegenous Perspectives, Manipur
22. Ravi Pragada, Mines Minerals and People
23. Ravindranath, River Basin Friends, Assam
24. Roma Malik, All India Union of Forest Working People
25. S. Saroja, Citizen consumer and civic Action Group, Chennai
26. Sanjeev Chandorkar, Tata Institute of Social Sciences, Mumbai
27. Sanjeev Danda, Delhi Solidarity Group
28. Satyam Shrivastava, SRUTI, New Delhi
29. Sitaram Shelar, Center for Promoting Democracy (CPD), Mumbai
30. Soumya Dutta, MAUSAM
31. Thoamas Franco, former General Secretary, All India Bank Officers’ Confederation
32. Ulka Mahajan, Shoshit Jan Andolan, Maharashtra
33. Vidya Dinkar, Citizens Forum for Mangalore Development, Mangalore.
34. Vijaya Chauhan, Narmada Solidarity Group, Mumbai
35. Vijayan M.J., Pakistan India People’s Forum for Peace & Democracy
36. Vimalbhai, National Alliance of People’s Movements
37. Vinod Chand, Actualization of Democracy, Mumbai
38. Wilfred D, INSAF
39. Himanshu Upadhyaya, Azim Premji University, Bengaluru