PMC, Yes Bank, IL&FS: Savers Suffer, Staff Protected & Botched Resolution
When India imposed a hard lock-down, decision-makers were clueless about how it would impact over 140 million Indians who were out of a job overnight and stranded across the country, far away from home and families. After they decided to walk thousands of miles without adequate food, water or money, their trauma continued to be ignored until it sparked national outrage. This was after the first hard lock-down, which had already stripped them or their money and dignity and left them dependent on charity for food. 
 
Now consider the ordeal of another set of people. Their hard-earned, carefully accumulated safe savings and investments looted because of a combination of failed supervision, fraud, or unfair regulatory action since 2018. The unending COVID lock-down had dealt them another blow with business, trade and jobs vanishing overnight. These are the victims of PMC Bank, those who were hard sold additional tier-1 (AT-1) bonds of Yes Bank and the thousands whose pensions are stuck in Infrastructure Leasing & Financial Serices (IL&FS) or money is locked in Franklin Templeton’s six closed schemes. There are also others who have lost money in cooperative banks. 
 
These victims are significantly smaller in number— may be under 100,000; they are not even a vote bank, so the apathy towards them is even worse. Many in government, who are protected by pensions, believe that these are educated people who were greedy enough to look at 0.5%-1% more in interest. Consequently, their pleas and protests and social media hashtags are not even acknowledged (#YesBank_AT1_RetailInvestor#PMCBankCrisis). 
 
After 2016 and demonetisation, we are no longer surprised at such high-handedness. But what comes as a complete surprise, and was not expected from this government, is the refusal to find quick and possible solutions (acquisition and transfer of ownership), while allowing these failed organisations to bleed depositors’ or investors’ money. Consider this:
 
PMC Bank: In October 2019, we wrote how this fraud-hit Bank, with 137 branches, was gobbling up Rs27 crore a month in order to be kept alive, but in a zombie state under an administrator. The banks cannot earn revenue and the staff is only engaged in loan recovery and minor administrative work. So whatever is left of depositors’ money after the Wadhawans of HDIL had bled it dry, will be gobbled up in keeping the Bank alive but in coma. 
 
Meanwhile, protests by depositors were weakened by paying over 80% of the depositors with savings of up to Rs1 lakh. The rest don't seem to matter. 
 
The government is correct in its decision not to nationalise private losses and fraud by merging PMC Bank with a public sector bank. But the alternative is not apathy and silence. The finance ministry and the Reserve Bank of India (RBI) owed it to the investors to find alternative solutions. It did nothing. 
 
When PMC Bank failed, there was a real possibility of ensuring it was quickly acquired. Through Moneylife Foundation, we worked hard at helping depositors by exploring the possibility of an acquisition, hoping we could push it through the courts and even submitting proposals and memorandums to the RBI and the Central government.
 
In India nothing works without the blessings of the government and the regulator. Acquiring a fraud-hit and failed entity is fraught with landmines and the government has to be on board to smooth out issues with the larger objective of protecting depositors’ money. 
 
Just after PMC Bank failed, there was a real possibility that investors (may be foreign investors) would be willing to pay a big price to acquire its banking licence and branch network in key metros. PMC was an attractive proposition with 137 well-run branches with core banking, forex and credit card permissions, superlative service culture and the unique distinction of working long hours for 360 days a year. It is this that had lured many businessmen and traders more than the 1% higher interest that is being ridiculed as their greed. 
 
Unfortunately, the government was uninterested. Instead of quick action to strike when the iron is hot, regulators tied themselves up in knots over who should be allowed to get the precious banking licence. 
 
Ironically enough, they have been horribly wrong in their selection for bank licenses many times over the past decades. Since RBI failed to act, a good opportunity was squandered. For nine months, RBI has been insisting that it is working on a solution. But it has continued with the services of the same mediocre administrator (a retired central banker with a patchy record) who has been giving false hopes to select depositors. Fast resolution was important, but it is still not too late, provided the government wants to help depositors. 
 
Even after the global economic mayhem due to the COVID pandemic, Mukesh Ambani’s Jio platforms have managed to raise a whopping Rs87,655 crore through leading global investors in just six weeks. Many Indian start-ups with a good story continue to raise money. If there is a will, PMC Bank may still find a suitor, if RBI and the finance ministry are willing to be flexible and find ways to make it happen. 
 
It can start by appointing a savvy administrator (many names have been suggested to the RBI governor) and empower him/her to find out-of-the-box solutions with full backing of RBI and government. This suggestion has been studiously ignored. 
 
YES Bank: This is another case where investors, mainly senior citizens, had been deliberately defrauded by none other than the relationship managers of the Bank. They were told that the AT-1 bonds were safer than fixed deposits and locked in a higher interest rate of 9% for five years. 
 
When the Yes Bank bailout through a public-private partnership was announced, many bankers, including private sector investors who brought in equity, argued for AT-1 bonds to be converted into equity at a big haircut to protect investors. Given how Yes Bank’s price soared after the bailout, this would have been a win-win solution. 
 
Instead, the government and the regulator threw AT-1 bond-holders to the wolves on the ground that they were savvy investors who ought to have known the risks involved. This was a false assumption on so many counts. 
 
The so-called savvy investors included mutual funds who have taken no personal hit – it is their investors who will suffer lower net asset values. The regulator and the rescuers were clueless that many individual investors were the Bank’s own customers. These investors have a very good case to make; but our judicial process is slow and expensive, while many depositors are desperately in need of money today. Finally, this move has dealt a systemic blow to AT-1 bonds as capital raising option for banks.
 
Even in Yes Bank, the bankers who were responsible for duping investor probably continue to hold their job and get paid, there are no consequences for regulatory failure and only the investors suffer crippling losses. 
 
IL&FS: This massive financial conglomerate failed in August 2018.
 
Two years later, while a slow process of resolution drags on, shockingly between 31st March and 4thApril this year, several key employees of IL&FS were given a 10% retention payment to stop them from leaving their jobs! Over Rs4.48 crore was paid out, when I brought this to the notice of RBI governor and chairman of IL&FS, Uday Kotak.
 
Subsequent payments were reportedly stopped. But don't forget that the one forensic report after another has exposed the complicity of Dilip Bhatia, who has been elevated to the post of CEO (chief executive officer) of ITNL Ltd (IL&FS Transport Network Ltd) and may even have been paid an incentive. 
 
Why does this happen? Well, if a country goes into a hard lock-down without a clue about how it will devastate the lives of 140 million Indians, can we really expect any more empathy or understanding about a few lakh middle-class people who are invariably the victims of financial crimes and fraud? 

 

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    COMMENTS

    tillan2k

    4 weeks ago

    it is appears it is RAJ-DHARMA of rulers to loot the ruled

    muralidhard2002

    4 weeks ago

    Earlier Muslim Kings from West Looted India; then Britishers looted. And Now Fraudulent Indians a/with Babus and Politicians (with change in flags) Loooottiinnng..... One thing is certain. Poor Indian Souls -The Looting NEVER ever STOPS!

    REPLY

    tillan2k

    In Reply to muralidhard2002 4 weeks ago

    It i s petty greed of depositors all know the strength of COOP banks still fe bps more if depositor it is their risk

    rajiv.pec

    4 weeks ago

    It appears that not only the GoI & bureaucracy is least bothered about the people losing their hard earned money but we are intent on rubbing salt into the wounds of the people.
    The bureaucracy is only interested in making money rather than serving the interest of the nation. Nothing changes except the beneficiaries?

    Imandari dikhane ka karne ka nai

    4 weeks ago

    Government made policies flexible so that when ever they want, can use for themself

    Imandari dikhane ka karne ka nai

    4 weeks ago

    Government made policies flexible so that when ever they want, can use for themself

    cjninan

    4 weeks ago

    Maybe uday kotak is not the right man for the job. He shoukd be replaced by some one more experienced

    ajaydubey.otpc

    4 weeks ago

    Dear All,
    I know IL&FS very closely. I am working with OTPC. A JV of IL&FS, ONGC and GOVT. OF TRIPURA. Same will happen with OTPC in future. Mark my words because these companies are promoted by government and are non government. Because of people place in top position take decision for ther own benefits and giving profit to there near and dear ones. Government money and decesion taken by private person

    REPLY

    tillan2k

    In Reply to ajaydubey.otpc 4 weeks ago

    simple it is public money put at the disposal of Govt cronies where losses are bank rolled profits are privatised /personalised

    shetyerb

    4 weeks ago

    This Government is by far the most ignorant Government when it comes to financial matters. They depend fully on BABUs who, because of their job security have no incentive to be in the forefront of Knowledge and Learning. It is the elementary Human Behaviour rule that JOB SECURITY BREEDS INEFFICIENCY.

    mantrisuresh1

    4 weeks ago

    Is anybody in charge listening?

    kocharbipin61

    4 weeks ago

    Very true - even after a year and a half, IL&FS has not paid out a penny - and now is simply writing down the valuations of its and ITNL assets so that they can be sold for a song while it's investors like those in Yes Bank get nothing or peanuts

    kd.paranjpe

    4 weeks ago

    Sir, You have poignantly portrayed the plight of the depositors and investors. Even with a lot of good ideas and good people who can save the depositor and investor wealth, nothing happens on the ground. We have a high degree of regulation for everything that a honest citizen must do, but we have very little policing and the State is almost, invariably, missing on the side of the victims. Why is the Police dept not in the picture? In the PMC case, even with the EOW of the Police involved, there is no movement to confiscate and auction the properties and conviction of the culprits of the scam. At the same time the State is seen to act with amazing alacrity at the smallest error of reporting, or a missed payment date. The duty of the state to protect investor wealth is not a priority, then how can the State expect foreign investors to make investments in this country.

    hamungel

    4 weeks ago

    Well written.

    pradeepsaha311

    4 weeks ago

    Govt banks were actually very strong. After 2008 theses Banks were forced to keep economy live by funding all infrastructure projects like road, electricity, ports , Telecom and aviaton. However when most of these projects failed the govt Banks were forced to bear this loss by booking the loan defaults from their profit RBI nominee's on boards were mute spectator when loans were given. When loans turned bad RBI conveniently imposed PCA on govt banks and allowed YES Bank, ILFS and other such NBFCs to acquire market share without proper supervision. RBI people are more interested in enjoying star hotels in the name of doing proper supervision. Let's hope some day regulator will also be held accountable.

    sy.yousuf9106

    4 weeks ago

    Please share your detailed opinion on the current stability/situation of Yes bank, especially since it appears on moneylife’s recommendations.

    Ramesh Popat

    4 weeks ago

    covid19 will provide few more failures- of co.s and few banks.
    and govt finances the most in the time to come shortly.! the virus
    is yet to show its ugly face more, we are opening more and more.
    though the govt also knows it better. overall a thrilling 2020!

    Charging interest during moratorium is serious issue: SC
    After the Reserve Bank of India said the waiver of interest charges on EMIs during moratorium will lead to loss of 1 per cent of the GDP, Supreme Court on Thursday asked the finance ministry to reply, whether the interest could be waived or it will continue during the moratorium period.
     
    A bench of Justices Ashok Bhushan, Sanjay Kishan Kaul and M.R. Shah said these are not normal times, and it is a serious issue, as on one hand moratorium is granted and then, the interest is charged on loans during this period. "There are two issues in this (matter). No interest during moratorium period and no interest on interest", said Justice Bhushan.
     
    Solicitor General Tushar Mehta, representing the Centre, contended before the bench that he would consult the finance ministry and file a response to both the questions. The top court allowed Mehta to file a reply on or before June 12.
     
    The observation from the bench came on a petition by Gajendra Sharma, where he sought a direction to declare the portion of RBI's March 27 notification as ultra vires to the extent it charges interest on the loan amount during the moratorium period.
     
    Sharma's counsel, senior advocate Rajeev Dutta, told the court the Centre is looking at the profitability of the banks and cited the recent order by top court on middle seat row in Air India matter, where the non-scheduled flights are to bring the stranded Indians from abroad. Justice Bhushan said the court is well aware, and the economic aspect is not greater than the health of the people.
     
    Sharma, a resident of Agra, contended that he is already facing financial hardship during the lockdown and obstruction in 'right to life' guaranteed by Article 21 of the Constitution. Dutta argued that RBI's position on the matter means that only banks should continue to earn profits, while the entire country struggles during Covid-19 pandemic, and told the court he would file a rejoinder on the RBI's reply.
     
    Mehta contended before the court that he would consult the finance ministry on this issue, and then respond on the issue with both the finance ministry and RBI's response.
     
    At the beginning of the matter, the bench expressed discontent that RBI's reply was leaked to the media before the matter came before the court. "Is RBI filing the reply first in the media and then in court?" said the court.
     
    Dutta contended this is a method to sensationalize the matter. The bench said this should not repeat.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    COMMENTS

    kocharbipin61

    4 weeks ago

    Shocking - if Supreme Court waives interest on loans and deposits - crores of retired people will suffer immensely.

    Uday Kotak to sell 2.83% equity to reduce stake as per RBI requirement
    Uday Kotak is selling 2.83% equity stake in Kotak Mahindra Bank, through a block deal, for around $900 million to meet the criteria set by the RBI to reduce promoter shareholding to 26% in the bank.
     
    Kotak is the promoter of the bank and Managing Director. This will be a 100% secondary placement through an accelerated book-build offering of equity shares. The block deal will take place on June 2, Tuesday.
     
    The placement agents are Kotak Securities, Morgan Stanley and Goldman Sachs.
     
    The deal size will be up to $900-918 million or Rs68-69,440 crore assuming deal size of 56 million equity shares or up to 2.83% of total equity shares outstanding as of May 31, 2020.
     
    Uday Kotak, as the promoter, is selling the stake. The pre-holding of the promoter group is 28.93% which will be reduced to 26.10% post the block deal.
     
    The deal objective of the sale of equity shares by Uday Suresh Kotak is to assist the Bank to progress towards compliance with Reserve Bank of India's requirement to reduce promoters' shareholding in the Bank to 26% of its paid up voting equity share capital by August 17, 2020.
     
    The floor price is Rs1,215-1240 per equity share. The discount range will be 0.7% discount (at top end of offer price range) and 2.7% discount (at floor price) to the close price of Rs1,248.40 as on June 1 on the National Stock Exchange of India.
     
    The discount range will be 1.5% discount (at top end of offer price range) and 3.5% discount (at Floor Price) to the VWAP price of Rs1,258.48 as on June 1, 2020 on the National Stock Exchange of India.
     
    The lock up stipulation is that the seller will not sell equity shares of the Bank for 60 days from May 29, subject to such restriction not being applicable on sale of equity shares of the bank by one or more members of the promoter group of the bank that progress towards the RBI's requirement to reduce the current promoter shareholding in the bank to 26% of the paid-up voting equity share capital of the company.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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