The Chief of Yes Bank, Rana Kapoor has been arrested and produced in a court in Mumbai over money laundering. Kapoor has therefore been remanded to police custody on the allegation of $581m placed against him by the Enforcement Directorate. The founder of the bank, which has been struggling to raise capital to meet up its regulatory requirements denied the allegations and displayed his willingness to cooperate with the investigating agency. As soon as the reserve bank of India said it would take over the bank because of its inability to raise capital to address potential loan losses and resultant downgrades, worried customers started queuing up outside the bank to make withdrawals.
RBI has said that in its bid to quickly restore depositors’ confidence in the bank, which has estimated deposits of $28bn, it will work on a rescue plan for India’s fifth-biggest private bank by asking State bank of India to assist with a revival plan. Private lenders such as Yes Bank were initially welcomed as bringing new technologies and fresh approaches to the state-dominated banking sector but it seems the perception was wrong because the law passed in 2016 on recovering bad debts that placed more pressure on all banks is now acting as a major drag on fresh lending.