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NEW DELHI : The corporate affairs ministry will scan Yes Bank’s transactions with companies for suspected violations of the Companies Act once the distressed lender is successfully rehabilitated, a person familiar with the development said. The ministry will specifically check the legality of Yes Bank’s transactions with privately-held companies.

“The RBI [Reserve Bank of India] is currently taking care of the matter as banks come under the central bank, although banks are incorporated as banking companies. At some point in time, the company law provisions will take their course regarding any inappropriate transactions that are covered under the Act," the person cited above said. However, the immediate priority is to protect the interests of depositors, the person said requesting anonymity.

The Institute of Chartered Accountants of India (ICAI) Wednesday said it will review Yes Bank’s financial statements for FY18 and FY19 in view of media reports of “systemic issues" with the lender. The government’s concerns centre around Yes Bank’s governance, compliance, asset classification and credit decisions.

On 5 March, RBI seized control of Yes Bank and capped withdrawals at 50,000, besides invalidating its additional tier-1 bonds. The State Bank of India will take a 49% stake in Yes Bank as part of a bailout package mooted by RBI, with government support.

A second person said when the government supersedes the board of a company with huge public interest following its failure or detection of fraud, investigations into its affairs need to be carried out without interfering with the steps required to preserve it as a going concern and its ability to raise capital. The template is to let the new leadership nurse the business back to health while the old guard is stripped off decision-making and made to face investigation.

The Yes Bank crisis has highlighted the underlying problems of the banking sector, said former ICAI secretary Ashok Haldia. “The Yes Bank failure not only puts at stake the fate of its depositors and investors, but also highlights the underlying issues exposing the vulnerability of other banks and the financial sector. Unless causes to the malaise are addressed, measures to address symptoms—may be for that matter cleaning up of balance sheet of ailing banks—would not yield sustainable benefits," he said.

Deepak Bhawnani, chief executive of Alea Consulting which conducts integrity due diligence, said it is not fair to paint the entire financial industry with the same brush. “Going forward, proactive measures to mitigate malfeasance could include mandatory, independent, enhanced KYC reports on large or unknown borrowers, and recurring background checks on senior employees, for conflict of interest issues."

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