MUMBAI : Yes Bank Ltd’s statutory auditor, BSR & Co., has sought a fresh audit into whistleblower complaints levelled against the bank and its founder Rana Kapoor after a special audit done by JLN US & Co. turned out to be inconclusive, a person familiar with the matter said.

The audit committee of Yes Bank’s board had ordered the special audit into the whistleblower’s complaints received in September 2018. The whistleblower had raised allegations of irregularities in the bank’s operations, potential conflict of interests in relation to Kapoor and misclassification of bad loans.

The bank had also conducted an internal inquiry into these allegations, carried out by the management led by Kapoor and supervised by the board. The inquiry resulted in a report that was reviewed by the board in November 2018. Based on further inputs and deliberations, the bank engaged the Vadodara-based JLN to independently examine the matter.

According to the person cited earlier, JLN informed the board and statutory auditor that it has not been able to prove some of the allegations raised by the whistleblower as it had limited access to documents. For instance, the complainant had raised questions over the propriety of certain loan exposures, especially real estate deals and large borderline credit exposures, and whether the borrowers had links with companies related to Kapoor, including his family office, Three Sisters. The whistleblower had sought a thorough review of transactions over the past five years.

“The regulators can suo moto call for an audit of the loans given by the bank to promoter’s related party entities. The shareholders should push for a change in the board, especially of directors who are considered close to the promoter, who no longer owns any significant shareholding in the company," said Shivram Subramanian, founder and managing director of proxy advisory firm InGovern Research Services

The bank’s notes to accounts for the quarter ended September 2019 describes the nature of the complaint. It said: “The bank became aware in September 2018 through communications from stock exchanges of an anonymous whistleblower complaint alleging irregularities in the bank’s operation, potential conflicts of interests in relation to the former managing director & CEO and allegations of incorrect NPA (non-performing loans) classifications."

“While JLN could prove that some of the real estate transactions were at arms’ length, the audit firm couldn’t prove others as it had access only to the data provided by the bank and not the transactions done by Rana’s family office. Only regulators Sebi and RBI can call for an audit into these books," the person said.

According to the latest shareholding pattern, Kapoor and his two family-owned entities, Morgan Credit Pvt. Ltd and Yes Capital (India) Pvt. Ltd, own a total of 4.72% promoter stake in Yes Bank, with Yes Capital holding 0.8% as on 30 September. Since the formation of the bank, Morgan Credit and Yes Capital have been holding promoter shares of the Kapoor family. Both the entities are owned by Kapoor’s daughters. The other co-founder, Madhu Kapur, and her family owned firm Mags Finvest Pvt. Ltd, own an 8.33% stake in the bank.

Yes Capital, through its 24 subsidiaries, is engaged in various business activities, including housing finance, real estate, providing long-term financing to individual companies etc. Kapoor and his wife Bindu held 4.07% stake in Yes Capital at the end of FY17 before he sold it off to his daughters.

The special audit, however, confirmed the complaint that exorbitant payouts were made to some employees, like Kapoor’s executive assistant Lata Dave; Amit Shah, former group president and head of marketing and communication; Rajat Monga, former senior group president and chief financial officer; Ashish Agarwal, former chief risk officer, among others.

Following this, BSR & Co. said that the audit report was unacceptable and has sought a fresh audit with expanded terms of reference. While the board is aware of this report, it is yet to take a decision on the matter, the person cited earlier said, requesting anonymity.

Emails to BSR & Co. and JLN went unanswered.

In its notes to account for the financial results relating to the quarter ended 30 September, Yes Bank said the findings of the JLN report did not point to any material impact on the financials of the bank.

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