The Rana Kapoor-Yes Bank story you never read.

Today's news on Yes Bank makes it apt to share something.

It was December 2018. A little less than two months went into reporting this story while I was at Mint. It was also set to be published. But at the last minute, Vinay Kamat, the editor of Mint, pulled back the story. Despite multiple requests, no reason was ever given for why the story was killed.

This was the story.

Thank you.

“Perfect”.

With this one word, Rana Kapoor, Yes Bank’s founder and outgoing chief executive officer, stamped his approval to an email response sent less than four minutes earlier by his bank to a series of questions seeking clarifications about a real estate transaction involving his wife.

Faultless is how Yes Bank and Kapoor view the transaction which saw Bliss Abode Pvt. Ltd, a privately held company owned by Bindu Rana Kapoor (and the late Sheela Kapoor, Rana Kapoor’s mother), spend Rs 378 crore to buy 40, Amrita Shergil Marg, in New Delhi, the family home of industrialist Gautam Thapar in September 2017. The property was mortgaged to Yes Bank before it was purchased by Bliss Abode.

The transaction raises questions about corporate governance practices at the bank, and whether a very close relative of the chief executive of the bank should be buying a property that has been offered as collateral to the lender. Interestingly, the charge on the property was released by the bank to facilitate the deal between Bliss Abode and the Thapar family on the understanding that the money raised will be used to pay down an existing loan.

Over the past two months, the following narrative based on documents and interviews with three executives. 

Gautam Thapar’s Avantha Realty mortgaged his bungalow, 40, Amrita Shergil Marg, built over a nearly 6,000 square yard area, in March 2016 to Yes Bank. This 2-km leafy avenue in Delhi, located next to the Lodhi Gardens, is where the nation’s super-wealthy agree to part with a chunk of their fortune to call it their home. Telecom tycoon Sunil Bharti Mittal is just one of the residents of this billionaires row.

Avantha Realty, the privately-owned firm which owned the 40, Amrita Shergil Marg property, had borrowed Rs 400 crore at an 11% interest. The bank’s in-house experts had valued the property at Rs 330 crore. Six months later, in October 2016, property consultants, Cushman and Wakefield, hired by Yes Bank, put a market value of Rs 357 crore. In June 2017, Thapar expressed its interest to sell this property and asked Yes Bank to remove the charge on the property. The bank removed the charge, claiming that it is normal practice. Three months later, in August 2017, Rahul Bhatia, owner of Indigo airlines, expressed his interest to buy the property for Rs 375 crore. For some reason, the deal fell through. Finally, towards the end of August, Bliss Abode emerged as the winner, when it agreed to pay Rs 378 crore to buy the property.

While the sale of a property or buying one is unexceptional, the fact that the wife of the founder of the bank is part of a transaction in which the bank is involved requires and an extra dose of transparency. Rana Kapoor is India’s second-wealthiest banker, estimated to be worth $1.3 billion, according to Forbes.

Yes Bank claims the transaction was not a related-party transaction and does not require any more disclosures that it has already done.

Some experts disagree. They say the transaction puts a spotlight on the dealings of private banks in India. 

"Let us assume that the entire transaction is legit. Then the question to ask is if the country needs private banking. Can family members of private bankers be allowed to do such deals, because fundamentally transactions like these which raises the question if a private bank is actually waiting for a borrower to get into a crisis and then the promoter of the bank bails out the borrower by doing a private deal," said one of the members of Kotak Committee set up by the markets regulator Securities Exchange Board of India on corporate governance. The person did not want to be named. 

Others say that at least three questions emerge related to this transaction.

First, what prompted Thapar to sell his house, which according to a friend of the businessman was a family jewel, and how did Bindu Kapoor get to know about this sale since Avantha Realty did not advertise. Third, did the then Yes Bank board members make any observations on the transaction as the money paid by Bindu Kapoor to Thapar eventually came back to Yes Bank.

The bank claims that the then board minuted (recorded) the transaction although it declines to share details, including during which board meeting did the members discuss and record this subject. A former independent director, who was at the board of Bank at the time of the transaction, said that he cannot remember any discussion on this subject. Finally, should the Reserve Bank of India allow such deals between family members of private bankers and borrowers of the bank as its raises questions about the bank’s lending practice to a borrower? 

 “Corporate governance is a joke if this transaction is deemed clean,” said a former executive at RBI and Securities and Exchange Board of India. “Based on the information we have, this looks like a completely manipulated transaction and can be proved if the regulator and investigative agencies start probing this deal. The first question is why Avantha Realty borrowed and did they share with the bank why they need this money? Again, is the bank not putting to risk the loan amount itself when it removes the charge? Second, how can the board of a Bank approve such a transaction? Does it not raise a question on bank’s loan practice to a particular borrower, especially since a property which was mortgaged with the bank has been bought by the wife of the founder and CEO of the bank?” 

“This transaction may be legal, but the question to ask yourself is, are you being shown this asset because of where you sit? And if the answer is yes, then you know where to draw a line,” said Amit Tandon, managing director of Institute of Institutional Advisory Services, a proxy advisory firm.

For now, Yes Bank, like its founder Rana Kapoor, calls the transaction kosher.   

“[I]t is crystal clear that the sale of ASM (Amrita Shergil Marg) property undertaken by Avantha Realty was strictly in compliance with applicable provisions of law, after thorough due diligence and without compromising the interest of YES Bank. Further, aforesaid transaction was duly informed to the Board of Directors for good order shake. Thus, the apprehensions of any alleged wrongdoing etc. is without any basis, merits or substance,” said a spokesperson for Yes Bank in an email, dated 24 November. 

A spokesperson for Indigo declined to offer a comment, saying it does not comment on personal matters. An email sent to Bliss Abode went unanswered.

Avantha Group declined to comment. However, an executive of the company said that the Group believes it has been “victimized” without elaborating more.

It is intriguing what made Thapar, 57, to sell his house since he had been sticking to his repayment schedule and doesn’t appear to have been in any particular financial distress at that time. Avantha Realty’s board said in June 2016 that “considering the financial position of the company, it was felt appropriate to dispose of the said property”.

So how bad were Avantha Realty’s finances?

Avantha Realty earns from rent and from investments its makes in real estate. The company, after this transaction, owns more than 500 acres of land, through 11 direct subsidiaries, across the country.

In the year ended March 2017, Avantha Realty had a total debt of Rs 678.21 crore. The company reported a 92% jump in revenue to Rs 51.79 crore at the end of March 2017 from Rs 26.89 crore at the end of March 2016. Its losses narrowed to Rs 27.01 crore from Rs 38.57 crore in the year ended March 2016. Still, the company had accumulated Rs 173 crore in losses since it was set up in May 1981.

Oddly, Thapar did not put out an advertisement about the sale of the property at 40, Amrita Shergil Marg. Property experts claim that this could have probably fetched the owner more money. Though to be fair properties in this part of the city are highly prized and often sold through word of mouth of a few chosen brokers.

Yes Bank clarified that the RBI had no communication with the bank on this real estate transaction.

“Further, in this connection, it is important to note that there has been NO formal or informal communication or even an indication from the Regulator to suggest that either this or any other specific client/exposure was part of their decision-making process while granting a shorter term to the MD&CEO,” said a spokesperson in an email, dated 24 November.

In an email dated, 26 November, Yes Bank explained that the sale of the property was done at arm’s length basis, and does not fall under the related party transaction.

“The Board/Committee noted that the transaction for sale was conducted through due process carried out by an external law firm engaged by the seller and the sale consideration was higher than the average of three benchmarks range (external valuation, similar transaction which happened around the same time, Next Best offer) and at an arms-length basis. In view of the confidentiality of the Board/Committee matters, we would not be able to disclose further details to a media house, but can confirm that the entire process has been reviewed and minuted as appropriate/required by law,” said a bank spokesperson.

During September and December quarters of 2017, Yes Bank’s eight member-board comprised of chairman Ashok Chawla, Mukesh Sabharwal and five independent directors, including Saurabh Srivastava, Debjani Ghosh, Brahm Dutt, and Vasant Gujarathi. Kapoor and Ajai Kumar were the two other directors.

One of the then board members, on the condition of anonymity, said: “I cannot remember about we having any such discussion”