YES Bank Under Scanner: Mumbai Police EOW To Probe Alleged ‘Closed-Loop Funding’ In Loan Deals
Mumbai’s financial circles are watching closely as the Economic Offences Wing (EOW) of the Mumbai Police prepares to examine allegations of ‘closed-loop funding’ linked to loan transactions between YES Bank and Suraksha Asset Reconstruction Private Limited. The development follows a detailed complaint submitted by former HDIL promoter Rakesh Kumar Wadhawan, who has called for a criminal investigation into a series of loan sanctions, restructurings and assignments undertaken between FY17 and FY19. The case, if pursued formally, could have wider implications for how stressed assets were handled during a volatile period in India’s banking sector. What Triggered The Complaint? Rakesh Kumar Wadhawan, suspended director of Housing Development and Infrastructure Limited (HDIL), has sought a probe into multiple transactions that allegedly lacked transparency, independent valuation and competitive price discovery. His complaint questions whether the sale and restructuring of certain loans followed regulatory norms and whether the funding arrangements were genuinely arm’s length. At the centre of the allegations is the claim that the 15 per cent margin money paid by Suraksha ARC for the acquisition of stressed assets was not independent third-party capital. Instead, the complaint alleges that the margin money was routed through group entities that had received financing from YES Bank during the same period. The representation describes this structure as a “closed-loop funding and round-tripping arrangement”, suggesting that the ultimate source of funds may have been the lending bank itself. If substantiated, such a structure would raise questions about the integrity of the transaction and whether it qualified as a true transfer of risk. Concerns Over Valuation And Process The complaint also references YES Bank’s internal Special Audit, which reportedly highlighted the absence of auctions or competitive bidding before certain stressed assets were sold. It further alleges that valuation reports were missing in some cases and that even SMA-2 classified accounts were assigned without mandatory recovery efforts. These claims have fuelled concerns about possible balance sheet management tactics and the potential “evergreening” of loans, a practice where fresh funds are extended to prevent an account from turning non-performing. One transaction cited in the complaint relates to a Rs 150-crore loan extended to Sapphire Land Development Private Limited. According to the filing, the internal credit appraisal had approved Rs 100 crore, but Rs 150 crore was ultimately disbursed. The loan was allegedly assigned to the ARC within ten months, during the moratorium period, despite the account not having turned non-performing at the time. The assignment of dues worth Rs 154.53 crore for Rs 150 crore has been described in the complaint as a “colourable device”. It alleges the absence of independent valuation, lack of market-based price discovery and post-facto approvals by the board. Further, the complaint claims that YES Bank retained economic exposure through security receipts amounting to Rs 127.50 crore, raising questions over whether the deal constituted a genuine “true sale”. Alleged Regulatory Violations The representation further alleges violations of the SARFAESI Act and RBI guidelines governing bank finance to NBFCs and asset securitisation. It contends that the structure of these transactions enabled Suraksha ARC to assert inflated claims and secure disproportionate voting rights in insolvency proceedings related to HDIL. Such claims, if proven, could potentially influence aspects of the corporate insolvency resolution process and raise governance questions within India’s stressed asset resolution ecosystem. The EOW has been urged to examine possible offences, including criminal conspiracy, cheating, breach of trust, falsification of records and diversion of funds. The complaint calls for scrutiny of audit reports, transaction trails and internal approvals linked to the deals. What Happens Next? Sources indicate that the Economic Offences Wing is likely to initiate a preliminary inquiry. A formal case may be registered if the allegations are found to have merit. Queries sent to YES Bank and Suraksha ARC remained unanswered at the time of publication. While investigations are at an early stage, the case has already drawn attention within banking and regulatory circles. Asset reconstruction transactions have long been a critical component of India’s stressed asset clean-up framework. Any findings pointing to procedural lapses or governance gaps could trigger broader scrutiny of funding structures and loan sale practices. For now, the focus remains on whether the alleged “closed-loop funding” arrangement can be substantiated through documentary evidence and financial trails.
Mumbai’s financial circles are watching closely as the Economic Offences Wing (EOW) of the Mumbai Police prepares to examine allegations of ‘closed-loop funding’ linked to loan transactions between YES Bank and Suraksha Asset Reconstruction Private Limited.
The development follows a detailed complaint submitted by former HDIL promoter Rakesh Kumar Wadhawan, who has called for a criminal investigation into a series of loan sanctions, restructurings and assignments undertaken between FY17 and FY19.
The case, if pursued formally, could have wider implications for how stressed assets were handled during a volatile period in India’s banking sector.
What Triggered The Complaint?
Rakesh Kumar Wadhawan, suspended director of Housing Development and Infrastructure Limited (HDIL), has sought a probe into multiple transactions that allegedly lacked transparency, independent valuation and competitive price discovery.
His complaint questions whether the sale and restructuring of certain loans followed regulatory norms and whether the funding arrangements were genuinely arm’s length.
At the centre of the allegations is the claim that the 15 per cent margin money paid by Suraksha ARC for the acquisition of stressed assets was not independent third-party capital. Instead, the complaint alleges that the margin money was routed through group entities that had received financing from YES Bank during the same period.
The representation describes this structure as a “closed-loop funding and round-tripping arrangement”, suggesting that the ultimate source of funds may have been the lending bank itself.
If substantiated, such a structure would raise questions about the integrity of the transaction and whether it qualified as a true transfer of risk.
Concerns Over Valuation And Process
The complaint also references YES Bank’s internal Special Audit, which reportedly highlighted the absence of auctions or competitive bidding before certain stressed assets were sold. It further alleges that valuation reports were missing in some cases and that even SMA-2 classified accounts were assigned without mandatory recovery efforts.
These claims have fuelled concerns about possible balance sheet management tactics and the potential “evergreening” of loans, a practice where fresh funds are extended to prevent an account from turning non-performing.
One transaction cited in the complaint relates to a Rs 150-crore loan extended to Sapphire Land Development Private Limited. According to the filing, the internal credit appraisal had approved Rs 100 crore, but Rs 150 crore was ultimately disbursed. The loan was allegedly assigned to the ARC within ten months, during the moratorium period, despite the account not having turned non-performing at the time.
The assignment of dues worth Rs 154.53 crore for Rs 150 crore has been described in the complaint as a “colourable device”. It alleges the absence of independent valuation, lack of market-based price discovery and post-facto approvals by the board. Further, the complaint claims that YES Bank retained economic exposure through security receipts amounting to Rs 127.50 crore, raising questions over whether the deal constituted a genuine “true sale”.
Alleged Regulatory Violations
The representation further alleges violations of the SARFAESI Act and RBI guidelines governing bank finance to NBFCs and asset securitisation. It contends that the structure of these transactions enabled Suraksha ARC to assert inflated claims and secure disproportionate voting rights in insolvency proceedings related to HDIL.
Such claims, if proven, could potentially influence aspects of the corporate insolvency resolution process and raise governance questions within India’s stressed asset resolution ecosystem.
The EOW has been urged to examine possible offences, including criminal conspiracy, cheating, breach of trust, falsification of records and diversion of funds. The complaint calls for scrutiny of audit reports, transaction trails and internal approvals linked to the deals.
What Happens Next?
Sources indicate that the Economic Offences Wing is likely to initiate a preliminary inquiry. A formal case may be registered if the allegations are found to have merit. Queries sent to YES Bank and Suraksha ARC remained unanswered at the time of publication.
While investigations are at an early stage, the case has already drawn attention within banking and regulatory circles. Asset reconstruction transactions have long been a critical component of India’s stressed asset clean-up framework. Any findings pointing to procedural lapses or governance gaps could trigger broader scrutiny of funding structures and loan sale practices.
For now, the focus remains on whether the alleged “closed-loop funding” arrangement can be substantiated through documentary evidence and financial trails.
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