While the case filed by Shagun was against Rana and the board of directors, it was the bank that had borne most of the cost of fighting to keep Rana in full control by hiring expensive lawyers.
In 2015, a single-judge bench of Bombay High Court recognized Madhu Kapur’s right to nominate directors on the bank’s board. YES Bank challenged that ruling before a two-judge bench. So, it wasn’t before 2019 that Shagun Gogia Kapur made it to the board of YES Bank. Even as all this was going on, Shagun used to constantly write to the RBI without getting any response.
Simultaneously, Rana was also trying to seize remaining control from Rabobank, who had stayed away from the picture all this while. On 26 April 2012, Rabobank sold a majority of its stake in Indian private lender YES Bank, raising about $87 million (about Rs 435 crore). YES Bank Managing Director and CEO Rana Kapoor said in 2013, ‘Rabo is just a financial investor in YES Bank. We do not see it as a partner in the medium or longer term, given the fact that it is (already) operating through an NBFC here and that it has plans to set up banking operations,’ clearly indicating that he wanted them out with the part stake as well.6
It wasn’t before May 2019, however, that Rabobank parted with its remaining stake in the bank.
The bank, at times, also became part of controversies that it wasn’t directly responsible for. In February 2011, SEBI banned six individuals, all Mumbai residents from one Panchal family, from the share market for three months.
What was their crime? They were involved in an IPO scam between 2003 and 2005, making unlawful gains worth Rs 24 crore. Right during that time, the bank had gone for its IPO. One among them, Roopalben Panchal, had applied through 6315 applications in the IPO of YES Bank. Applications were made in the retail category and each of the 6315 applications (6221 from the same address in Ahmedabad) applied for 1050 shares. As the issue was oversubscribed by around ten times in this category, the shares were allotted proportionately, and each application received 150 shares—cornering a total of 9.47 lakh shares. She had invested Rs 29.83 crore, when the total allowed investment per retail investor was just Rs 50,000. She sold these shares in the first few days of listing and made Rs 1.37 crore from it.
THE BANK’S LOAN STORY
With Rabobank selling its shareholding by 2012, Rana was quick to grab control of the bank. As one of the senior executives at the bank told me once: ‘After that it was a one-man show. Rana was the actor, director, scriptwriter, producer—all by himself.’
And the show that this one man came up with is nothing less than a Hollywood thriller. Even though he had grabbed full control of the bank by 2013, it was still short of creating the mess that was to unfold over the next seven years. He had a problem: India was seeing unprecedented inflation at that time; the economic metrics were going through a low. There was a classical Indian-policymaker solution to that mess: increase the repo rate (the rate at which the RBI lends to the banks), which would increase the cost of funds in banks and reduce loan flow into the economy.
How successful this measure has been in curbing inflation in the country is questionable. In case of retail inflation, which the RBI uses to determine interest rates in the country, food amounts for 45.86 per cent of the weightage—the highest. And there are hardly any people who stand in queues at any bank’s loan counters to buy food from the market.
However, this rise in the policy rates does lead to a hike in the lending rates—and mostly hits the corporate borrowers. In Rana’s case, it was more painful after he gained control of the bank. His business model was an utter failure with high interest rates at the macroeconomic level. Let me tell you why.
One evening at his Samudra Mahal residence, which was formerly owned by Gwalior’s royal family, Rana met the owner of a famous shipping company that was going through a lot of stress. A large private lender was after the owner for repayment and time was running out for the company. The money involved was around Rs 3500 crore. As no one was willing to bail him out, the liquidation of the company was being talked about.
But that was not to be the case, as Rana Kapoor was there to save the day. A well-wisher of the shipping company promoter told him that Kapoor, who was then at the helm of YES Bank, would be the only person willing to bail him out. The businessman could not reach the banker despite making many calls but then, a couple of days later, Kapoor’s office reached out to him. A dinner meeting was arranged at Samudra Mahal. For two hours the two men talked about everything but business. As the dinner progressed, Rana got down to it. ‘So, you need Rs 3.5 billion?’ he asked the shipping company promoter.
What the promoter heard next was unbelievable. Rana was willing to extend a credit line worth Rs 5000 crore to him over the span of the next twelve years. Reluctantly, as he lacked options, he gave in to Rana’s offer. But like every other good thing you buy in life, this also came at a cost: He was supposed to pay 10 per cent of the amount upfront, which came to be approximately Rs 500 crore.
Rana was known to be
