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YES BANK SCAM

Author: Kratika Khandelwal, pursuing Bachelor of Commerce from M.K.H.S. Gujarati Girls College, Indore, and Institute of company secretaries of India


The Yes Bank scam refers to a financial fraud case that came to light in March 2020, involving Yes Bank, a private sector bank in India. The scam involved the bank’s founder and former CEO, Rana Kapoor, and his associates allegedly siphoning off funds from the bank through various means.


The scam came to light when the Reserve Bank of India (RBI) took control of Yes Bank and imposed a withdrawal limit on depositors due to the bank’s deteriorating financial health. The RBI found that the bank had inflated its assets, understated its liabilities, and provided loans to companies with poor creditworthiness. The RBI also found irregularities in the bank’s financial statements and the appointment of certain directors.


The Enforcement Directorate (ED), India’s financial investigation agency, launched an investigation into the scam and arrested Rana Kapoor in March 2020. The ED found that Kapoor had received kickbacks in exchange for granting loans to some companies, and the bank had extended loans to entities that had no intention of repaying them. Kapoor was accused of money laundering and other financial crimes.


The scam led to significant losses for investors and depositors of Yes Bank, and the Indian government had to infuse capital into the bank to keep it afloat. The scam also raised questions about the governance and regulation of private-sector banks in India.


Following are some of the case laws that describes the yes Bank scam

There are several cases related to the Yes Bank scam that have been filed by various agencies and individuals. Here are some notable ones:


Enforcement Directorate (ED) vs Rana Kapoor: The ED arrested Rana Kapoor, the founder and former CEO of Yes Bank, in March 2020 in connection with money laundering charges. Kapoor was accused of receiving kickbacks in exchange for granting loans to some companies, and the bank had extended loans to entities that had no intention of repaying them. Kapoor’s case is currently being heard by the special court for Prevention of Money Laundering Act (PMLA) cases.


Central Bureau of Investigation (CBI) vs Rana Kapoor and others: The CBI registered a case against Rana Kapoor, his wife, and others in March 2020 for allegedly receiving bribes in exchange for extending loans to some companies. The case is currently being investigated.


Securities and Exchange Board of India (SEBI) vs Yes Bank: SEBI imposed a penalty of Rs 1 crore on Yes Bank in August 2020 for violating disclosure norms in the case of its co-founder and promoter, Rana Kapoor. SEBI found that the bank had delayed disclosing information about Kapoor’s shareholding in the bank and his related-party transactions.


Yes Bank shareholders vs Yes Bank: A group of Yes Bank shareholders filed a class-action lawsuit in the US in April 2020 against the bank, its former CEO Rana Kapoor, and its former CFO. The lawsuit alleged that the defendants made false and misleading statements to investors and failed to disclose the bank’s true financial condition.


These are some of the notable cases related to the Yes Bank scam. The investigations and legal proceedings are ongoing, and more cases may be filed in the future.


Problems faced by depositers of yes bank during scam

In March 2020, the Reserve Bank of India (RBI) placed Yes Bank under a moratorium, which caused a lot of distress and problems for depositors. This was due to the revelation of fraudulent practices by the bank’s promoters and senior officials. Some of the problems faced by depositors of Yes Bank during this scam include:


Limited withdrawal: Initially, the RBI had restricted withdrawal of funds from Yes Bank accounts to Rs. 50,000 per account holder, causing a lot of inconvenience to depositors who needed access to their funds urgently.


Uncertainty: The moratorium and subsequent restrictions caused a lot of uncertainty among depositors, who were unsure about the safety of their funds and the future of the bank.


Loss of trust: The fraud scandal and the RBI’s intervention eroded the trust that depositors had in Yes Bank, which could have long-term consequences for the bank’s reputation.


Delayed resolution: The resolution process, which involved the restructuring of the bank and the infusion of capital from other investors, took several months to complete, causing further inconvenience to depositors.


Loss of interest: Depositors were unable to earn interest on their deposits during the moratorium period, which could have a financial impact on them.


Overall, the Yes Bank scam had a significant impact on depositors, causing them financial and emotional distress, and highlighting the importance of robust regulatory oversight to prevent such incidents in the future.


Conclusion

The Yes Bank scam was a case of financial fraud that involved the bank’s promoters and senior officials. In March 2020, the Reserve Bank of India (RBI) placed Yes Bank under a moratorium due to the revelation of fraudulent practices, which caused a lot of distress and problems for depositors.


The fraud Involved granting loans to companies that were already in distress, and hiding non-performing assets from regulators and investors. The bank’s co-founder, Rana Kapoor, was arrested and charged with money laundering and other financial crimes.


To resolve the crisis, the RBI took over the management of the bank and restructured it, while also infusing capital from other investors. The process took several months to complete, during which depositors faced limited withdrawal, uncertainty, and loss of trust in the bank.


The Yes Bank scam highlighted the importance of robust regulatory oversight and the need for banks to maintain sound financial practices to avoid such incidents in the future. The investigation and prosecution of those responsible for the fraud also underscored the need for accountability and transparency in the financial sector.

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