Yes Bank Scam: Audit Report Exposes Loan Irregularities Before CBI Action

Mumbai: It's been almost seven years since a whistleblower, in September 2018, exposed several irregularities in the functioning of Yes Bank in sanctioning credit facilities. FPJ looks at the audit report prepared six months before the CBI lodged the case.

The audit report was prepared in September 2019, a year after the chairman of the bank and National Stock Exchange received anonymous letters complaining about irregularities in the bank. The special audit was carried out in the wake of the allegations made in the two letters to review transactions, especially in real estate deals during the year 2016 to 2019.

Months after the said report, the CBI, in March 2020, booked the bank’s promoter, Rana Kapoor, for irregularities in sanctioning loans to DHFL and allegedly receiving kickbacks. Kapoor was later also booked by the CBI in connection with the credit facilities granted to the Avantha Group. He was also probed for the credit facilities granted to Cox and Kings. Kapoor is separately chargesheeted for money laundering allegations for the alleged kickbacks he had received by granting various credit facilities.

The report had highlighted a major flaw: security deposits amounting to one-third of the contract value were accepted without satisfactory justification. The report claims that there were no compliances with regards to pre and post-disbursement sanction terms related to security creation, which posed legal and recovery risks, resulting in exposure becoming unsecured.

The report further states that, in some cases, 'loans were disbursed towards payment of security deposit and mobilization advance for engineering, procurement, and construction work orders with the group companies, but in reality, the funds may not be used for the stated purpose.'

Besides, the auditors claimed that the bank had extended credit facilities to newly incorporated companies with no sound financial history, no assets, and no related business experience, merely on the basis of contractual agreements entered with connected companies. “We have identified some deviations from industry practices as well as borrowers within the bank. We observed that, despite weak financials and assessment of the specific purpose for end use, on the basis of group support and collaterals, the bank has extended a long moratorium and credit facilities to the company. Long moratorium periods were given to the borrowers ranging from 3 years to 6 years, on the basis of group support,” reads the report.

Further, the report highlighted that the bank did not conduct due diligence and the loan was sanctioned solely on the basis of the net worth of the promoter. “No standalone details of the borrower company were taken into consideration while sanctioning the loan,” the report states.

Further, the auditors noted that in many cases, borrowers had mentioned multiple purposes for obtaining credit from the bank without quantification or allocation of the required amount for specific purposes. However, it was revealed that the maximum funds were utilized for a single purpose, the audit report claims.

Besides, one of the key drawbacks that the auditors highlighted was that, in few cases, including real estate exposure, the bank has disbursed loans in one tranche. The purpose for these was mentioned as reimbursement costs incurred in the project/property affairs/mobilization advances/construction and development. The requirement should be assessed in the light of periodic requirements of the borrower, the report had recommended.