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RBI may not extend Yes Bank CEO Rana Kapoor’s term; experts question board’s request to seek extension

Experts say the board's actions too should come under scrutiny at a time when the Reserve Bank of India is taking action against chiefs of private sector banks.

September 28, 2018 / 02:10 PM IST
Rana Kapoor, Founder - Yes Bank

Rana Kapoor, Founder - Yes Bank

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Yes Bank board’s decision to seek extension for Rana Kapoor to stay at the helm is unlikely to be approved by the Reserve Bank of India (RBI). "There is no merit in seeking the extension, the bank is just buying more time," said a source close to the developments.

This request also raises concerns over corporate governance issues and the role of the board, experts say. They say that the board's actions too should come under scrutiny at a time when the Reserve Bank of India is taking action against chiefs of private sector banks.

“This brings to the fore, the role of the board not being played properly. Every board says they have a remuneration and selection committee or policy. They say they have succession planning in place but you still take one year to decide on a successor, which means that (policy) is just a lip service,” said JN Gupta, MD of Stakeholder Empowerment Services.

On September 25, the mid-sized lender’s board requested more time from RBI to allow Kapoor to remain as the chief executive officer and managing director (CEO and MD) until a minimum of April 30, 2019 and thereafter extend to September 30, 2019.

A week ago, the central bank cut short his tenure to January 30 as against the proposed three-year extension.


Time to implement RBI action?

According to Gupta, the RBI’s denial to give Kapoor a five-month extension must be after taking into account all those factors, “not that it acted in haste”.

Time-consuming challenges of finding a suitable successor and to identify and enable a new incumbent to get fully conversant with Yes Bank and its working are the reasons Yes Bank mentioned in its statement to the bourses.

The bank also decided to request for a “minimum extension for Kapoor up to April 30, 2019, for finalisation of audited financial statements”.

"By asking this, the Board admits that 1) They do not have a succession plan; 2) They will take one year to find a new CEO; 3) The argument that Rana Kapoor is required for the finalising of accounts simply cannot be digested," Gupta said.

If Axis Bank, ICICI Bank and even Tata Sons could find a replacement in a short time, of course only after RBI's action, why cannot Yes Bank? he asked.

Decision making at private bank boards

Around March, the banking regulator raised apprehensions on Axis Bank’s board decision to allow a third reappointment for CEO and MD Shikha Sharma, who will step down in December 31 this year.

After charges of impropriety and conflict of interest were raised against ICICI Bank CEO and MD Chanda Kochhar, the board, which gave a clean chit to her in a day’s time, was reprimanded by the RBI and SEBI.

This forced the board to ask Kochhar to go on leave and it created a new position of chief operating officer (COO) handed to Sandeep Bakhshi to look at the business and finance operations of the bank. Bakhshi reports to the board.

Both Axis Bank and ICICI Bank took action within four months of the RBI’s directions.

According to another analyst, “The CEOs want control and they control the board rather than the other way round. The board is a puppet and does not practice any of the corporate governance policies they list out.”

To ensure a long-term succession plan, Yes Bank’s board has decided to elevate senior group president Rajat Monga, who handles financial management, and Pralay Mondal, who heads retail, as executive directors.

Monga, who has been the bank's CFO has also faced questions on approval of the bank's financial statements which misreported NPAs worth Rs 10,531 crore in FY16 and FY17.

The analyst quoted above said, this could be Kapoor’s last effort to put his own people in a higher position.

Brokerage ratings

Global brokerage Macquarie Research says that RBI may not approve internal candidates as they may be construed as equally responsible for bank operations, it said. It further added that the stock re-rating now hinges on outcomes of stated action plans as well as FY18 divergences.

Yes Bank’s stock has lost nearly 40 percent since the RBI's action on Kapoor in August end.

On the one hand, over 30 brokerages are bullish on the bank from its business and growth perspective, on the other hand, analysts do see near-term challenges faced by the private bank.

Appointment of a credible new CEO now becomes critical for the stability of Yes Bank’s operations, Macquarie Research adds.

To worsen things, given the dispute between Yes bank’s two promoters, both Madhu Kapur (7.2% shareholder) and Rana Kapoor’s (10.66%) approval will be jointly required to appoint a successor.

This also raises uncertainty around the strength and stability of the board.
Beena Parmar
first published: Sep 27, 2018 10:15 am

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