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Last Updated : Jun 22, 2015 09:44 PM IST | Source: CNBC-TV18

Will update Articles; ops undisturbed by HC order: Yes Bank

Stating that Yes Bank will update its Articles of Association (AoA) in order to more clearly define shareholder rights, as well as bring them in line with latest banking regulations, Yes Bank MD Rana Kapoor said the focus would be on institutionalizing its board further.

Stating that Yes Bank will update its Articles of Association (AoA) in order to more clearly define shareholder rights, as well as bring them in line with latest banking regulations, Yes Bank MD Rana Kapoor said the focus would be on institutionalizing its board further.

Speaking on the recent High Court ruling that had termed as invalid seven director appointments in the past, Kapoor said the order would not affect the bank's operations as some directors were re-elected immediately after by shareholders.

Yes Bank co-founder Rana Kapoor is involved in a legal battle with Madhu Kapur, and the widow of late co-founder Ashok Kapur (as well as the sister of his wife). The latter has sought the right to be involved in matters of board selection.


Below is the transcript of the interview on CNBC-TV18.

Latha: What kind of amendments will have to be made to the Articles of Association? What we now realise is an interim judgement of the High Court?

A: Yes Bank is eleven-and-a-half years old. When we started incorporating the company in November 2003, it was a startup venture which has three promoter directors. Over the last 11 plus years the Bank has got fully institutionalised naturally with capital raising and an initial public offering (IPO) about ten years ago and sequence of capital raising events since then. The induction of independent directors; our seven out of ten directors are independent and even our chairperson Miss Radha Singh and Mr Srinivasan were earlier independent directors. Mr Srinivasan is illustrious and highly respected regulator.

So to that reflect the character of the Bank, today as the professionals\\' bank of India, naturally we need to refresh the articles. Therefore, couple of things that need to be refreshed is independence of the appointment of the chairperson for instance, the MD and CEO for instance, the right of the Board of Directors for it to be in tandem with the Banking Regulation Act and the new Companies Act and also to be in conformity with the updated regulations of Sebi. So there are lot of things that need to be updated also we need to recognise and reward some of our young leaders to bring them on the board as Whole Time Directors. So a lot of business and governance justification to amend the articles and that is what the honourable court has also noted.

Latha: What is the current status of those three whole Time Directors?

A: There was a proposal which was discussed in the board subject to naturally Reserve Bank of India's (RBI) approval and we have not moved the approvals because this matter has been sub judice for a while. As we get more clarity and we did get clarity in the recent interim order which justifies the fact that certain actions need to be taken naturally with the approvals of the board, with approvals of shareholders' body and thereafter we need to institutionalise the Bank more and recognise these Directors. Right now it is in abeyance, pending final amendments to the articles.

Latha: Only those three people are in abeyance?

A: Yes.

Latha: The other appointments will continue till 2016?

A: All our Directors are duly elected in annual general meeting (AGMs) and widely so, they are approved by the Board of Directors proceeding that. So, all the other Directorships will continue as four Directors were re-elected in the recent AGM.

Reema: Can you give us a sense about the timeline of amending the Articles of Association. We thought that the appointment of Directors which was considered invalid was with a five week stay. What happens post?

A: Let me clarify because there maybe some wrong impression. I think what the honourable court has noted is that fundamentally if there are any minor errors in terms of process involved - that can be rectified in the next five weeks. The fact is that the order was dated June 4, there was an AGM on June 6, there was a fresh election relating to four of the Directors, all of them have been approved by a significant or overwhelming majority. So they stand totally regularised. So there is absolutely no impact in terms of Board of Directors for that matter on the business itself.

Latha: Coming back to the amendments to the articles that you said you will be making - that will curb all promoter shareholder rights by giving Board more rights?

A: If you see the articles today and if you read them in conjunction with the Banking Regulation Act, distinctly there is complete freedom, complete empowerment of the Board of Directors to elect Directors, Independent as well as Whole Time.

So we need to naturally update the articles to reflect the state of governance and the evolving regulations of RBI and Sebi and the new Companies Act. So yes, the answer is that the Board is fully empowered to take all decisions in this regard.

Latha: You will have to concede Mrs Madhu Kapur one victory at least that at least she has ensured that the board is institutionalised more in the process of her challenging?

A: We need to recognise that the bank, the board has absolutely nothing against Mrs Madhu Kapur. We respect her. She is wife of our late Non-Executive Chairman Mr Ashok Kapur. I think there has to be an understanding that banks being public trust institutions, they need to be institutionalise.

These are not family estates and particularly the character Yes Bank is adorned as the professionals' bank of India and the 11,000 employees we have in Bank today with an average age of 31. So the character of the Bank is not family entity.

Latha: I do not think Mrs Kapur was against Board nominated people. Her point was if it is shareholder appointed then she must have a right. I do not think her case was arguing that she is against Board appointed Directors. My sense is that you have to give her that much credit that ever since this case has started, the Bank has moved towards Board appointed decisions.

A: The point is all of us including me, my family; everybody meets on the same platform, which is the AGM. We all vote together collectively and it must be realised and respected that there have been three AGMs since Madhu Kapur and family filed this case against the Bank and in all of those, all Directors appointments and naturally all the business resolutions have been approved three times in the last two odd years with an overwhelming majority.

So the business interests of the Bank are being taken care of by shareholders, by the Board of Directors and naturally the management. So it's respect for the process, respect for the fact that we are totally institutionalised and please remember in last ten years since we had the IPO, we are the best performing IPO in the last ten years, so shareholders wealth accretion.

If you see the order and the research notes that have come out in the last two-three days after the order was released, all of them without exception points out that the Bank is well managed, the Board is a first-class Board.

Latha: I think I began by saying that the financial performance and the profit and loss (P&L) performance has not been impacted by the boardroom issue at all. But let us just...

A: [Interrupts] But, if there is activism, unfortunately and lack of respect for the bank’s directors and its CEO’s office and whole time directors then that is not in the interest of the bank. What is in interest of the bank... 

Latha: [Interrupts] You just said it did not impact the bank at all.

A: No, what I said is that you must realise that please respect, this is a holistic institution. That is all I ask Madhu Kapur and family: respect the institution.

Latha: Let me just come to this part. Do you suspect or is it not possible that when you amend the articles of association, Mrs Madhu Kapur may object to that and may even challenge that?

A: Anything is possible, but we have to move forward with positive energy and to reflect, as I mentioned to you, the institutional character today.

The fact is that there are guidelines that there is a refreshment required in the articles to incorporate today’s regulatory actions and therefore, if there are challenges, let them be. But, the fact is the business of the bank should move forward.

Reema: So, let me come back to my first question. How soon are you likely to amend the articles of association?

A: We have a board meeting towards the end of July and this will be discussed and I assume that within this fiscal year, we should take it forward. Naturally with some direction from the honourable court.

Latha: You gave some broad idea that amendments will be such that the whole time directors, young directors will be allowed to become whole time directors. Can you just give us a little more clarity on exactly what will be the amendments? How do you strengthen the board? What will be the promoter-shareholder rights and what will be the other changes we should expect?

A: We have to realise, first and foremost, there are five types of directors. Chairman and MD, which are naturally approved by the board and also approved by shareholders and Reserve bank of India. Second category is whole time directors which I explained.

Third category are independent directors. Fourth is non-executive, non-independent directors. None of these four categories of directors as clarified in the honourable courts order are impacted. There is no impact. Directors under these four categories... (interrupted)

Latha: Non-executive non-independent?

A: Non-executive non-independent, all these directors can be appointed by the board of directors of the bank and naturally, subsequently, were required by RBI and of course shareholders. It is only one category which is Indian partner which is like promoter, that requires a joint action.

Now, in effect, today there is no such promoter, director as such on the board as a nominee. There is no nominee. Everybody practically, effectively is an independent director and the chair person, Ms Radha Singh and my appointments are additionally approved by Reserve Bank of India. So, there is in effect no impact today.

Latha: I wanted to ask you something else a little unconnected to the boardroom issue because ultimately your investors are...

A: [Interrupts] You need to do some business as well.

Latha: Your investors also want to know about the bank. You and Kotak started together. But, Kotak has suddenly taken a giant stride with ING Vysya. Do you not feel like you have missed the bus in terms of, I mean look at the sudden difference in number of branches.

A: I would like to believe that ours being a Greenfield bank practically 11 and a half years old, in itself is one of India’s best growth stories. If you need illustration or... (Interrupted)

Latha: I am not disputing the organic growth.

A: Make in India, that in itself. If you see our Compound Annual Growth Rate (CAGR), particularly over the last seven years since the global crisis and Euro Zone and India’s own economic challenges. We have maintained growth rates in excess of 25 to 27 percent. And today we have one percent market share.

The difference in Yes Bank is that we have a mission on quality. We have the ability to change gears, when the economy is looking better. Naturally we will speeden and hasten our rate of growth and then at the same time, because of our strong risk architecture, the evolution of our risk culture, we will also moderate growth where warranted.

So, the model is organic, that does not mean that we are not receptive. For example, in our securities business, even in our asset management business, where there are more attractive targets available, we may look at them.

Latha: you are not looking at targets in banking?

A: The ability of the bank to grow as I mentioned to you and we have now, a vision, a strategy for the next five years, we believe that give or take with the improvements, steady improvements in the economy, a bank like ours should be able to grow 27-30 percent.

So, any external infusion which could compromise the quality of our HR, could in a way impact the quality of our overall architecture, maybe somewhat invasive. I think we need to demonstrate our ability to grow at 27-30 percent a year, next five years. If there is an opportunity to amalgamate and where HR can be, the ethos can be protected, we will be receptive.

Latha: But, just a word back to the Kapoor vs. Kapur issue on which we invited you, you see that tussle still going on. It is going to be with us for a bit now?

A: It is difficult to predict because the honourable court has given a very significant order which rests most of the issues involved. There are one or two process related issues, as I mentioned to you. The central issue is updating and refreshing the articles and if that is done to the satisfaction of all the shareholders because this is not just one family.

Please remember, to repeat, professional interest of the bank as reflected in the voting over the last three annual general meetings (AGM), practically 90 percent of shareholders are aligned with the board and management. That, to me, is the moot point here.

Latha: That point is taken. I mean I do not think that was objected to. It is just that it was a shareholder-promoter... 

A: [Interrupted] My friend Cyril Shroff also, on your channel, last week clarified that there is a process and the fact of the matter is that governance is not impacted. You tell me which board has seven independent directors on the board?

Latha: Mr Cyril Shroff clearly said: I am now talking as Yes Bank’s counsel as well. In any case the point is taken.

A: He has a great reputation to say the right things.

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First Published on Jun 22, 2015 10:49 am
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