The 'Yes' to loot

The dramatic developments in the case of Yes Bank will bring new shock waves to a financial sector that is already shaken and bruised. It will further pull-down sentiment in an economy that is slowing and brings more bad news in the midst of unexpected events like the feared spread of the Coronavirus disease. The Reserve Bank of India (RBI) last week unveiled a “Yes Bank Ltd. Reconstruction Scheme, 2020” one day after the regulator placed limits on withdrawals and superseded the Board of Directors for a month “owing to serious deterioration in the financial position of the Bank”. But there remain several unanswered questions on what the real picture is, what caused the sudden trigger for a bank that has been under watch for over two years now and the price, if any, that violators would be asked to pay for what at the end of the day amounts to playing with public funds.

At this late stage, the threat to fix individual responsibility looks like an afterthought and attempt to wash over responsibility. But even before that happens, we have been assured that the State Bank of India would be willing to invest in Yes Bank. This is nothing short of privatising profits and socialising losses, a model that mocks at the very idea of privatisation and liberalisation, and spells doom for the Indian economy.

The Union Finance Minister Ms. Nirmala Sitharaman is quoted as having said last week that the RBI would look into what has gone wrong at Yes Bank and fix individual responsibilities. This is like locking the stable after the horse has bolted. It does not require a hard-nosed investigator to question these steps at this late stage, after the deed is done and the collapse is imminent. The slide has been on for a while now and it has happened under regulatory watch.  At this late stage, the threat to fix individual responsibility looks like an afterthought and attempt to wash over responsibility. But even before that happens, we have been assured that the State Bank of India, India’s largest public sector bank which has its own set of issues and concerns, would be willing to invest in Yes Bank. This is nothing short of privatising profits and socialising losses, a model that mocks at the very idea of privatisation and liberalisation, and spells doom for the Indian economy.

The FM was quoted as saying that the bad loans on the books of Yes Bank come from the likes of the Anil Ambani group, Essel, ILFS, DHFL and Vodafone. Getting the SBI to buy into such a bank that faces imminent collapse is like supporting with public funds the stressed assets of some of India’s largest defaulters, whose string of defaults sit with multiple banks and contribute to the high NPA number that has been a source of worry for the economy. This is public money being used to bail out those who should never be, never mind what the arguments, what the analysis or whatever the understanding of the banking sector is. Fear and imminent collapse and dampening mood and sinking sentiment cannot be staved off this way.

What appears to be perfected by now under the Indian regulatory system is actually a free run for what might be called the “robber barons” of India, those who the eminent historian Vernon Louis Parrington described in his magnum opus on American history as “ruthless, predatory, capable; single-minded men, rogues and rascals often, but never feeble, never hindered by petty scruple, never given to puling or whining –  the raw materials of a race of capitalistic buccaneers.”

Where has the sense of urgency been in getting Mr. Rana Kapoor, the founder who has been in the midst of a series of questions to step down, to investigate the violations that forced the regulator to ask him to eventually go, then to offer the bank, still under the influence of Mr. Kapoor, the freedom to appoint a new CEO, who, himself, quickly came under a cloud as disclosures emerged of violations when one of the board members of Yes Bank resigned.

The FM is quite correct in pointing out that "it is not that the Yes Bank matter has come up yesterday or today.” With that said, it certainly does not suffice to add, as the FM did, that the RBI has been “consistently monitoring the situation since 2017."  It is equally not sufficient to say that the RBI has been asked to act so that due process of law takes course with a sense of urgency. Where has the sense of urgency been in getting Mr. Rana Kapoor, the founder who has been in the midst of a series of questions to step down, to investigate the violations that forced the regulator to ask him to eventually go, then to offer the bank, still under the influence of Mr. Kapoor, the freedom to appoint a new CEO, who, himself, quickly came under a cloud as disclosures emerged of violations when one of the board members of Yes Bank resigned. The director who quit in January this year was Mr. Uttam Prakash Agarwal, who according to a Bloomberg report cited deteriorating standards of corporate governance and compliance failures. He reportedly blamed the bank’s Chief Executive Officer Mr. Ravneet Gill and other senior executives for the alleged failings. This indicates that nothing really changed at Yes Bank even after Mr. Rana Kapoor was declined an extension and had to go in January 2019.

All of this material is in the public domain and does not raise confidence in the capacity either of the regulator to act independently or under the orders of the government to stop the game that been going on at Yes Bank.

The ease with which policies have been violated, with the regulator looking on, supposedly monitoring endlessly and acting only when it could hold on no more, appears to give private sector banking of the Yes Bank kind a new kind of license.

In this light, some important questions have also been raised by the Maharashtra State Bank Employees Federation, which has correctly pointed out in a statement that “once again the government has followed the principle of nationalisation of losses and privatisation of profit, and has asked the SBI to bail out Yes Bank.” This is the true import of what has happened. The employees mince no words when they point out that the management of Yes Bank should be held to account and those who have looted public funds must be behind bars now.

It is not for nothing that banking requires a license. This is a highly regulated business because it is tasked with collecting funds from the public. The ease with which policies have been violated, with the regulator looking on, supposedly monitoring endlessly and acting only when it could hold on no more, appears to give private sector banking of the Yes Bank kind a new kind of license. This is the license to loot and it doesn’t speak much about where we are headed in times that are anyways very challenging.

As the Yes Bank saga unfolds, it might be useful to note that it was only 15 years ago that Global Trust Bank was guided into a merger with the Oriental Bank of Commerce. In 2017, the RBI placed restrictions on Oriental Bank. Insiders say the bank never really did well after that merger. Now, the bank will cease to exist after it has been merged into Punjab National Bank and Union Bank of India. Bank mergers of this kind under the Indian system are guided, nudged and pushed form the very top. These are not market forces in free operation. In the case of Yes Bank, these are government hands of bailout after money, influence, power have been abused by a privileged few in the name of the market forces.  It would be wrong to think that SBI, just because it is large in size, can absorb losses, invest at will and help bail out a bank as and when it is expedient for the government to do so. In the process, trust is being sacrificed and the banking system is being hollowed out.

(The author is a journalist and a faculty member at SPJIMR. Views are personal)