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Two years after Rana Kapoor’s exit, Yes Bank continues to grapple with the legacy of its founder—a plethora of loans given out in an alleged quid pro quo where the bank bypassed institutional credit checks.

Since founder Kapoor’s departure as managing director and chief executive of Yes Bank, several of these large exposures of the private sector lender have soured. People directly aware of the matter said the chances of recovery in most cases are slim as a large portion of collaterals such as land were grossly inflated in value against the loans given.

According to the people cited above, most of these red-flagged accounts are in the bank’s real estate loan portfolio. The loans were given to finance construction, but the value of the underlying collateral, such as land, was grossly inflated.

The borrowers include the Wadhawan family-promoted Housing Development and Infrastructure Ltd, which is also under investigation in the PMC Bank fraud case, where a similar modus operandi was used to siphon off funds through bogus loans.

In another instance, the bank’s current management classified a 400 crore loan given to a prominent Mumbai developer as fraud.

The issue was resolved after the bank agreed to take a haircut on the principal through a one-time settlement. Another example is a 500 crore loan to Oyster Buildwell, an Avantha group company, which had negligible capital and income at the time the loan was sanctioned.

Other controversial transactions include Yes Bank’s alleged dealings with a well-known asset reconstruction company (ARC) promoted by the kin of a prominent industrialist, where close to 80% of such bad loans were transferred to the ARC. According to a whistle-blower complaint, these bad loans were indirectly funded by the bank through near-zero cost loans given to the above mentioned ARC. Emails sent to Yes Bank with a detailed set of queries in this regard remained unanswered until press time on Thursday.

Analysts also questioned the continuing presence of some of Kapoor’s former aides in the bank.

In a recent note, independent analyst Hemendra Hazari wrote, “More alarming is the case of Ashish Agarwal, chief risk officer (CRO) and also responsible for corporate loans for more than a decade (March 2009 to May 2020), who appraised and approved all the dubious corporate loans (including Oyster Buildwell), which ultimately brought the bank to its knees: he was rewarded by the board in January 2019 for his “track record" and put forward as a possible successor to Rana Kapoor by elevating him to the post of executive director."

Another former Kapoor aide, Parag Gorakshakar, who was the chief risk officer for the real estate sector and is currently the chief credit officer of Yes Bank, has been named in the FIR filed by the Enforcement Directorate in the Mack Star Marketing case.

Yes Bank under Kapoor is alleged to have illegally sanctioned a loan of 202 crore to Mack Star Marketing, a joint venture of DE Shaw Group and promoters of HDIL Group.

This joint venture was formed to develop a commercial complex called ‘Kaledonia’ at Mumbai’s Andheri suburbs. According to the FIR, the entire loan sanctioned by Yes Bank was siphoned off to HDIL group companies and used for repaying earlier loans taken by HDIL from Yes Bank, which were on the verge of turning bad.

Mint has reviewed a copy of the Enforcement Directorate order .

DE Shaw Group holds 78.09% shares in Mack Star Marketing, and promoters of HDIL hold 21.91% shares. The ED FIR has named Gorakshakar, along with Kapoor and several other Yes Bank employees, for aiding the transaction.

Yes Bank’s gross NPA as a percentage of total assets stood at 15.6%at the end of June quarter against 17.3% a year ago. Of the total NPAs, corporate loans constitute 25,561 crore or 27%.

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