ED raids Yes Bank founder Rana Kapoor's residence

The Enforcement Directorate (ED) raided the residence of beleaguered Yes Bank founder Rana Kapoor in Mumbai on Friday.

According to a Hindustan Times report, Kapoor was also questioned by the ED in connection with Yes Bank's exposure to the bankrupt reality firm Diwan Housing Finance Corporation (DHFL). Yes Bank had reportedly offered loans worth hundreds of crores to DHFL which in turned these into NPA, causing losses to the bank.

Yes Bank, whose 62 per cent loans come from the corporate books, has large exposure to crippled companies like the Anil Ambani group, Essel group, bankrupt DHFL and IL&FS, and the troubled telecom Vodafone Idea. The bank was the biggest lender to loan defaulter travel firm Cox & Kings with total claims of over Rs 2,285 crore, according to a list of financial creditors prepared by the resolution professional of the debt-ridden firm.

Yes Bank has 1,000 branches across the country.

The Reserve Bank of India (RBI) had superseded the board of Yes Bank and imposed a 30-day moratorium after the bank failed to raise capital to address potential loan losses. On Friday, Finance Minister Nirmala Sitharaman said depositors that their money is safe and added that the RBI has been asked to assess reasons for the crisis and fix responsibilities.

Fear and panic

The assurance, however, failed to convince the depositors who queued up outside branches of the troubled private lender.

Several customers are now contemplating opening up new accounts in other banks. There were cases of heated exchange between bank staff and customers, who failed to withdraw money in Mumbai. The situation reminded one of the plights of depositors of Punjab and Maharashtra Cooperative Bank six months ago.

The bank's depositors are allowed to withdraw cash up to Rs 50,000 from their accounts during the 30-day moratorium period, according to a government gazette. The withdrawal limit, however, can be relaxed up to Rs 5 lakh in case of medical emergencies, higher education and for expenses related to marriages.

Governance risk

The RBI superseding the board of Yes Bank casts light on governance risks in India's banking sector, Fitch Ratings said on Friday.

Fitch said there is a risk that the already poor operating environment for the banking sector could suffer further impairment if the government's efforts to tackle problems in the bank fail to provide reassurance to depositors and investors. "The Reserve Bank of India (RBI) takeover of Yes Bank casts light on governance risks in India's banking sector," Fitch Ratings, which has a negative outlook on India's banking sector, said in a statement.

"However, we believe that there is a risk that the RBI's move could backfire if it prompts depositors to shift their money to institutions that are perceived to be safer. This could pose liquidity challenges, particularly for smaller private banks with weaker franchises or more limited access to support from parent entities," Fitch added.

(With PTI inputs)