A discredited business world

On current form, the bizarre drama that is the Rana Kapoor-YES Bank saga can be labelled The League of Failed Businessmen. Anil Ambani, Kapil Wadhwan, Subhash Chandra Naresh Goyal, Gautam Thapar, Peter Kerkar are all in queue for YES-related investigations that, according to the Enforcement Directorate, could include “several other businessmen”. You almost expect the Singh brothers, Malvinder and Shivinder, to have walk-on parts and, perhaps, Nirav Modi too. Either way, stay tuned for more.  

The YES Bank debacle together with serial abscondings (Lalit Modi, Vijay Mallya, Nirav Modi) and spectacular business busts (IL&FS, DHFL, Jet Airways) has helped Indian business reputation hit a low with a speed that outpaces the downward spiral of the Sensex. Just three years ago, the country’s fourth-largest lender was feted (including by this paper) as a racehorse in the stable of private banks, a grouping that was tipped to overtake the zombie public sector banks anytime soon. The larger-than-life promoter worked hard to ensure that he was seen and heard everywhere, once prompting a high court judge to acidly request him to stop inundating his chamber with self-promotional material.  A high-profile tiff for control of the bank with his sister-in-law (his brother was killed in the November 2008 Mumbai terror attacks) added to the mystique, as did the Page 3 lifestyle captured by a breathless press. Only seasoned cynics would have predicted a denouement, and it came in the prosaic form of an Asset Quality Review by the central bank. That forensic review that revealed, among other things, many more stressed assets than the bank admitted. As it became clear that Mr Kapoor was the cause of the problems, the regulator asked him to step down by 2019, which he did with reluctance. 

Before this ignominious exit, the promoter appeared to be guilty of no more than irrational exuberance and bad judgement. For instance, many other banks, private or state-owned, have seen their bad debts expand after lending to so-called blue-chips such as Vodafone-Idea, Infrastructure Leasing and Finance Company, Essel Group, CG Power and Radius Developers. All these sectors have been victims of a policy-induced slowdown (telecom, real estate, power in particular) that, in some cases, questionable business practices have compounded (IL&FS being a prime example).  

Now it appears from preliminary investigations that Mr Kapoor was treating this publicly listed bank as a vast financial pool of resources for family businesses — in commodity trading, hospitality, infrastructure — and personal gain of mind-boggling levels. The quid pro quo with Gautam Thapar, for instance, involved a company with the singularly inappropriate name of Bliss Abode, for a residence in tony Amrita Sher Gill Marg. Another reciprocal loan to a firm controlled by his three daughters involved a deal with Kapil Wadhwan of Dewan Housing Finance, itself the focus of an Enforcement Directorate money-laundering probe. Another company, which stands accused of money laundering, is called, without irony, Three Sisters Institutional Office, and was set up to manage the family wealth.

So, you may ask, if all these facts were lurking in investigatory cross-hairs for a year and a half, why didn’t the central bank step in sooner with its rescue act? The Reserve Bank of India governor offered a testy explanation when he came on TV to assure dismayed account holders their money was safe. The hapless Ravneet Gill, brought in from Deutsche Bank and with all the right door-opening credentials, was being given a fair chance to find buyers for the promoter stake. (His periodic buoyant announcements that many prospective investors were in the pipeline — “well regulated European financial institutions” had apparently shown interest, capital raising was “just a matter of time” — became the butt of much hilarity.)   

But as with Vijay Mallya, the whispers in the chambers and corner rooms and markets, were about Political Connections, you understand. Who? No one’s really 100 per cent sure, you know, but Names were bandied about all the same. 

And so, we come back to the same story from the bad old days to the Licence Raj to the post-liberalisation era, of crony capitalism. The discriminatory enrichment this nexus affords the cronies and the innocent victims in the form of employees, small businesses and account-holders are only part of the story. It’s the persistence of crony capitalism, helped by crony boards, that makes most Indian businesspeople really bad at doing business in India. Lending money to dodgy companies, sloppy due diligence, commandeering corporate resources for personal gain or pursuing questionably restrictive growth strategies are all done in the confidence that the politico-regulatory complex will shield you — until it can’t. These are not conventional business risks but asymmetries that preclude genuine competition. The slow but inexorable progress of greater transparency may expose some of these defects, which explains why the line of failing businessmen is rapidly expanding. But for a sector that was supposed to step into the vacuum created by a receding public sector after 1991, Indian business does not generate much confidence right now.