Modi govt invested PM National Relief Fund in Yes Bank despite RBI moratorium

The recently released financial statement of Prime Minister’s National Relief Fund (PMNRF) for the financial year 2019-20 has revealed that the government invested Rs 250 crore in Yes Bank Fixed Deposit Receipts even though the Reserve Bank of India had flagged concerns about the bank in 2018. The investment was more than the Rs 222 crore that the Union government gave as relief in the year which saw Covid-19, Cyclone Fani and severe floods across the country.

This has raised concerns that the Modi government has converted the PMNRF into a corporate bailout vehicle instead of providing relief.

The investment in Yes Bank was done even though in the beginning of 2019, the RBI had put a moratorium on the bank and Finance Minister Nirmala Sitharaman had stated that the central bank had been monitoring the Yes Bank since 2017.

In 2018, RBI had written several letters to the Bank pointing towards serious lapses in governance. This culminated in the central bank asking then Managing Director and CEO Rana Kapoor to step down after January 31, 2019.

In the first week of March 2020, two major clearing firms - NSE Clearing (NCL) and Indian Clearing Corporation (ICCL) - had announced that the bank guarantees (BGs) and fixed deposit receipts (FDRs) issued by Yes Bank were no longer valid. It is not yet clear what the current status of the PMNRF’s investment is. It will be evident only after the financial statement for 2020-21 is released.

Congress party spokesperson Supriya Shrinate has said questions must be raised on why the government put money in a toxic asset such as Yes Bank when the government was aware of what was happening in the bank.

Chartered accountant and Congress spokesperson Gourav Vallabh pointed out that it was clear from the receipts and payment account for the year ending March 31, 2020, that Rs 250 crore of fixed deposit with IDFC Bank might have got matured and the same amount got reinvested in a bank which was suffering from huge NPAs and had violated corporate governance practices.

Public finance economist Arun Kumar asserted that this kind of investment could only happen if the government had certain interests in the bank. “The government should have invested in a public sector bank instead of a private bank which has already been cautioned by the RBI,” said Kumar, who is currently the Malcolm S. Adiseshiah Chair Professor at the Institute of Social Sciences in New Delhi.

National Herald sent several questions about this investment to PMNRF, but there was no response. This article will be updated if and when the government responds to the questions.

Kumar underscored that we do not know the status of the money which was parked with Yes Bank. “This means people will suffer. In the pandemic period, if the government wanted to take the money and put it for relief activities, it would not have been possible,” he added.

Vallabh asserted that the question which was more important was that why money which was collected under PMNRF was not invested in a safer instrument and safer public sector banks. “Why wasn’t the Rs 250 crore put with a large bank like State Bank of India because this money was contributed by every citizen of our country with a belief that it would be used for relief against natural and other calamities? Is this not a violation of the trust with which every citizen donated their hard-earned money for relief purposes under PMNRF?”

The recently-released statement has also brought to light that in FY 20, an additional Rs 385 crore was invested in State Development Loans. We now know that only 15.7% remains as cash even though the government has stated on the website that the relief fund has a balance of Rs 4393.19, which is misleading.

During the fiscal year, despite several natural calamities including floods in Kerala, Karnataka, Maharashtra and Gujarat during the year and Cyclone Fani devastating Odisha, the government spent only Rs 1.03 crore on rehabilitation and welfare measures.

Even as FY 20 saw the beginning of the Covid-19 pandemic in the country, the government’s relief through PMNRF for medical assistance was just Rs 161.3 crore, only marginally higher than 2018-19, when it spent Rs 160.7 crore.

Shrinate asked, “Why didn’t the government demarcate any of the relief funds towards Covid-19 in the first quarter of 2020 because everyone knew that a pandemic had begun by then?”

In 2018-19, the government invested Rs 250 crore of PMNRF funds into IDFC fixed deposit. This amount was withdrawn a year later to invest in the troubled Yes Bank. The same year, for the first time, the Union government began to invest in State Development loans. An amount of Rs 1,301 crore was invested and the fund accrued an interest of Rs 41.75 crore the same year.

But it was not revealed into which state funds the government had invested in and whether the government had invested equally in all states to ensure equitable distribution. It is not certain if the government had invested only in BJP-ruled states as there is no public record of this.

In FY 19, the government did not use any money with PMNRF for rehabilitation and welfare measures despite some of the worst floods in the decade occurring in 2018. Kerala, Karnataka, Nagaland were a few of the states which had been severely affected.

This was even though the Kerala government had requested for Rs 2,000 crore for the rehabilitation of those affected by the floods. The Centre released only Rs 600 crore from the Consolidated Fund of India and not PMNRF.

The Union government only provided an ex-gratia amount to families which had deaths or a seriously injured person due to the floods in several states. However, in 2018-19, no amount was released for victims of communal clashes either for welfare measures.

The last time the government spend money from PMNRF for natural calamities was in FY 2017-18, when too only Rs 24.35 crore was used for earthquake, cloud burst and flood relief. In the same year, a meager Rs 13.42 crore was provided to victims of communal clashes and accidents.