Delhi High Court Seeks Centre, RBI Response On Yes Bank Stressed Assets Transfer

The Delhi High Court sought the response of the Centre, RBI, and SEBI on Friday on a PIL seeking to form a committee of experts to investigate the transfer of a stressed asset portfolio of Rs 48,000 crore from Yes Bank to JC Flowers Asset Reconstruction Company.

In his PIL, former Rajya Sabha member Subramanian Swamy sought to direct the Union Ministry of Finance, the Reserve Bank of India, and the Securities and Exchange Board of India to formulate comprehensive guidelines in accordance with the recommendations of the committee to check any such future agreements or transactions and to regulate the arrangements entered into between banks, the NBFS, or other financial institutions and asset reconstruction companies.

A bench of Chief Justice Satish Chandra Sharma and Justice Subramonium Prasad, which did not issue formal notice on the plea, asked the authorities to file their responses within four weeks and listed the matter for further hearing on July 14.

It also asked Yes Bank Ltd. and JC Flowers Asset Reconstruction Pvt. Ltd. to submit their responses.

Swamy was represented in the matter by senior advocate Rajshekhar Rao and lawyer Satya Sabharwal.

The petitioner said through this petition he wishes to highlight the growing rot prevalent in the private banking sector, which has been further accelerated by the perpetual decay of corporate governance and ethical standards prevailing in the private banking industry and asset reconstruction industry.

"This is a growing case of concern as there is an apparent conflict of interest between the functioning of banks and ARCs. The situation is further complicated when motivated and mala fide transactions between the two are allowed to stand as the regulator (RBI) fails to act and enforce its own guidelines, causing a significant loss of public monies," the plea said.

It said the matter relates to the transfer of a stressed asset portfolio worth Rs 48,000 crore from Yes Bank to JC Flowers Asset Reconstruction Company.

"This transfer is linked to another deal in which Respondent No. 4 (Yes Bank) has obtained a stake of up to 19.9% in the company of Respondent No. 5 (JC Flowers Asset Reconstruction Company)," it said.

Submitting that non-performing assets are a growing concern for private sector banks in India, Swamy said poor credit risk management practices and insufficient internal controls have contributed to the high levels of NPAs in private sector banks.

"It is truly concerning to witness the act of respondent no. 4, a scheduled commercial bank holding a significant amount of public funds, which has prioritised its own interests over the well-being of its customers and the country as a whole.

"The transfer of a distressed asset portfolio worth Rs 48,000 crore to respondent no. 5 through these transactions appears to be a blatant attempt to circumvent laws and regulations in favour of respondent no. 5," the plea said.

It added that this not only undermines the trust of the public in the banking sector but also jeopardises the economic stability of the country.

"It is alarming to see how respondent no. 4 is willing to sacrifice the recovery of public funds for the benefit of one company," it claimed.

The petitioner said the transactions between the bank and the company seem to be an attempt to bypass RBI guidelines and harm the general public.

The plea alleged that these transactions appear to be tailored specifically for the company, effectively preventing other ARCs from participating, resulting in a lack of transparency in price discovery for such stressed assets.