Mumbai Police EOW begins enquiry into YES Bank loan deals after complaint alleges circular funding and irregular asset sales
Mumbai: The Economic Offences Wing of the Mumbai Police has initiated a preliminary enquiry into alleged irregular loan transactions involving YES Bank and Suraksha Asset Reconstruction Company. The action follows a detailed complaint filed by Rakesh Kumar Wadhawan, suspended director and former promoter of Housing Development and Infrastructure Limited.
Wadhawan has asked investigators to examine a series of loan sanctions, restructurings and asset assignments carried out between financial years 2017 and 2019, a period when YES Bank was dealing with rising stressed assets and restructuring parts of its loan book.
What Led To Probe
According to the complaint submitted to the EOW, YES Bank allegedly facilitated a funding structure that resulted in a circular flow of money. Wadhawan claims that the bank extended loans to certain entities and that these funds were later used, directly or indirectly, to acquire stressed assets from the same bank.
He claims that instead of using real third party money, the deals created a circular flow of funds. According to him, the same money moved within connected entities rather than coming from outside investors. He argues that this kind of arrangement may go against the intent of India’s asset reconstruction and securitisation rules under the SARFAESI Act and the guidelines issued by the Reserve Bank of India.
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Valuation and Bidding Concerns
The complaint also questions how the stressed assets were sold. It says the bank did not always follow a transparent process. According to the allegations, some transactions did not involve independent valuation of the assets or open competitive bidding.
The complainant argues that these steps are important to ensure fair pricing and transparency. Without them, he claims, it becomes difficult to confirm whether the assets were sold at their true market value.
Wadhawan has referred to findings from a special audit conducted at YES Bank that reportedly highlighted procedural lapses and governance concerns in certain loan assignments. Investigators are expected to verify whether proper price discovery mechanisms were followed and whether assets were transferred at fair market value.
Margin Money Questions
Under ARC regulations, asset reconstruction companies must contribute at least 15 percent of the acquisition price in cash when purchasing stressed loans.
The complaint claims that the money used by Suraksha ARC to buy stressed loans may not have come from its own independent funds. It alleges that some of the money was arranged through entities that were financed by YES Bank itself. This, the complainant says, created a possible round-tripping structure where the bank’s own funds indirectly helped finance the purchase of its loans.
If investigators confirm this kind of funding loop, it could raise serious doubts about whether the sale of the stressed assets actually shifted the financial risk away from YES Bank. In a proper “true sale,” the bank must completely transfer both the risk and the potential returns of the asset to the buyer.
Sapphire Loan Case
The complaint also highlights a specific deal involving Sapphire Land Development Pvt Ltd.
According to the allegations, YES Bank approved a term loan of ₹150 crore for the company. However, internal records reportedly showed a sanction of ₹100 crore, even though ₹150 crore was eventually disbursed.
The complaint further claims that the bank transferred this loan to Suraksha ARC within ten months, during the moratorium period. It also alleges that YES Bank continued to hold a large financial interest in the loan through security receipts worth around ₹127.50 crore.
The complainant argues that because the bank retained such a big stake, the deal may not qualify as a genuine sale. In simple terms, he claims the bank did not fully pass on the risk and ownership of the loan to the buyer.
Insolvency Angle
Wadhawan has also alleged that the structure of these transactions may have enabled Suraksha ARC to secure voting rights in insolvency proceedings related to HDIL under the Insolvency and Bankruptcy Code. He claims that this may have influenced decision making during the corporate insolvency resolution process. These claims form part of the complaint and remain subject to verification.
What EOW Is Examining
The Economic Offences Wing has begun reviewing documents submitted with the complaint. Officials are likely to examine loan sanction letters, disbursement records, valuation reports, board approvals, internal audit findings and correspondence between the entities involved.
At this stage, the enquiry remains preliminary. If investigators find evidence of cognisable offences, they may register a formal FIR and proceed with a full criminal investigation.
Current Status
As of now, YES Bank and Suraksha ARC have not issued public statements responding to the allegations mentioned in the complaint. No regulatory action has been announced by the Reserve Bank of India so far.
The case is still at an early stage. The findings of the Mumbai Police EOW will determine whether the matter escalates into a larger criminal investigation with wider implications for asset reconstruction practices and governance standards in India’s banking sector.
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