A special audit conducted into YES Bank’s asset sales has revealed serious lapses in due process and raised red flags over the sale of HDIL’s ₹500 crore loan to Suraksha Asset Reconstruction Company (ARC). The report exposes a potential case of “backdoor funding” where YES Bank allegedly financed the very entities that bought its stressed assets.
The transaction in question dates back to March 31, 2017, when YES Bank assigned HDIL’s non-performing loan along with interest dues totaling over ₹523 crore to Suraksha ARC for a consideration of ₹518 crore. The bank claimed a cash margin of 15%, but investigators now reveal that the funds used for the purchase have originated from the bank itself.
According to the special audit, YES Bank had extended a ₹199 crore facility (term loan and cash credit) to Fortune Integrated Assets Service Ltd., a company linked to the Suraksha group, just weeks before the ARC transaction. Subsequently, in March 2017, the cash credit limit was further enhanced by ₹100 crore funds which were allegedly routed into Suraksha ARC’s accounts for acquiring the HDIL loan.
The audit highlights this round-tripping of funds as a critical lapse in governance and risk management. In multiple cases, YES Bank appears to have sanctioned loans or permitted utilization of existing facilities by group entities, which then used those funds to make cash margin payments for acquiring stressed assets, a move that defeats the purpose of risk offloading.
Further, the bank failed to follow a transparent process in pricing and selling these assets. There is no evidence of competitive bidding or formal valuation in the sale to Suraksha ARC. Some accounts categorized as SMA-2 (Special Mention Accounts, just shy of turning non-performing) were also sold without appropriate disclosures or market testing.
Suraksha ARC emerged as a major beneficiary of YES Bank’s asset offloading exercise between 2016 and 2018, acquiring over ₹2,700 crore worth of exposure. The audit notes that in FY17 alone, Suraksha bought 98% of the assets sold to ARCs raising questions of preferential treatment and opacity.
The HDIL loan, with an interest rate of 14.25% and penal interest at 2%, had accumulated to nearly ₹700 crore by the time Suraksha ARC filed its claim in the insolvency resolution process. The resolution plan for HDIL’s guarantor group is still awaiting NCLT approval, with Suraksha’s recovery likely to be capped at ₹150 crore a potential haircut of over 75%.
The revelations come amid broader scrutiny of YES Bank’s pre-2020 lending and restructuring practices under previous management. The findings are likely to have regulatory and legal consequences, with serious implications for both YES Bank and Suraksha ARC.
As insolvency tribunals and enforcement agencies take note, this special audit could set off a chain of deeper investigations into the nexus between banks, borrower groups, and asset reconstruction companies.