Special Audit in YES Bank against the Whistleblower’s Complaints Received in September 2018

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BSR &Co., the statutory auditor of Yes Bank Ltd has asked for a fresh audit, to have a detailed investigation in the complaint filed by the whistleblower against Rana Kapoor, founder of Yes Bank. This move came when the special audit done by JLN US & Co resulted into a nonconclusive process.

In September 2018 a complaint was filed by a whistleblower against Rana Kapoor, and it was alleged that there is a gross irregularity in the working of the Bank and there is a conflict of interest in misclassifying of the bad loans and founder, Rana Kapoor. After that, the Bank’s audit committee ordered to have a special audit done into the whistleblower’s complaints, but that seems to have done no good.

Not only a special audit but also an internal audit was done after the complaint was received, which was done by management which Kapoor led, and the Board supervised it. After the internal inquiry, Vadodara-based JLN was hired to take over the matter and conduct an independent inquiry.

JLN US & Co arguments for not having a conclusive report

A person familiar with the matter informed that JLN said it was not able to prove some of the allegation made by the whistleblower because they did not have the access of all the relevant documents. For example, the whistleblower wanted to know the details of the last five-year transaction that the company has entered into, particularly the real estate transactions made and the relation with the borrowers.

Though JLN was able to prove that some of the real estate transaction that was done in the past were at arm’s length, it was not able to show the family transaction due to lack of the required documents.

BSR & Co., who are the statutory auditor of YES Bank, said that the argument of having limited access to the documents is “unacceptable” a want to conduct a fresh enquiry into the matter. However, this is not final as the Board is yet to decide on holding a fresh audit.

It was in September 2018 that Yes Bank was informed about the anonymous whistleblower complaint through the stock exchanges. In the complaint, the whistleblower alleged about the irregularity in the working of the Bank, conflict of interest in the relation of CFO and the former managing director and accusation about the incorrect classification of the non-performing loans.

About Yes Bank

As per the report, Rana Kapoor and his family-owned entity Yes Capital (India) Pvt. Ltd and Morgan Credit Pvt. Ltd has a total of 4.72% promoter stake in the Yes Bank. Of the total 4.72%, Yes Capital has a 0.8% stake.

After the formation of Yes Bank, these two entities are holding the promoter shares of Kapoor Family. Kapoor’s daughter is the owner of both these entities.

Whereas, Madhu Kapur, who is the co-founder and Mags Finvest Pvt. Ltd (her family-owned firm) holds around 8.33% state on Yes Bank. 

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