Beena Parmar
Moneycontrol News
Rana Kapoor, Yes Bank's co-Founder and CEO, may have received an extension to continue in his chair from the Reserve Bank of India, but the way the communique was worded suggests that the road ahead is unclear for the senior banker.
On Thursday, the Reserve Bank of India (RBI) has allowed Kapoor to continue in his present position ‘till further notice’ as against the three-year term proposal.
The way RBI has worded the communication suggests that the full three-year term as proposed by the bank's board and shareholders is yet undecided. “We wish to inform you that the bank has received RBI’s approval that Shri Rana Kapoor may continue as Managing Director and CEO of Yes Bank till further notice from RBI. You are requested to take note of the same,” the bank informed the exchanges in a late evening filing.
The uncertainty reflected in Yes Bank's shares, with the stock falling over 5 percent in trade today. Investor confidence was shaken this week as the stock took a battering of nearly 10 percent on the BSE.
The central bank approval came just a day before Kapoor's current 3-year term was to end on August 31, amid speculations on reasons for the delay. Sources told Moneycontrol that Yes Bank's board had met earlier this week after the banking regulator asked some questions related to the lender’s regulatory compliance.
"RBI's queries were on divergence in non-performing assets last year after its inspection and also sanction of loans to a few borrowers," a source said. Another source added that the central bank has asked the bank to revalidate his three-year term during which the bank can find a successor.
Financial performance versus divergences Even as the mid-sized bank witnessed strong financial performance over the past quarters, the total quantum of Yes Bank's NPAs that have been pointed out as divergences by RBI so far aggregate to Rs 10,532 crore (Rs 4,177 crore in FY16 and Rs 6,355 crore in FY17).
For more than a year now, RBI has pulled up banks including Axis Bank and ICICI Bank for higher NPAs and divergences in their reported figures after an inspection. It has also levied penalties on lenders.
Had the divergences been accounted for, its FY16 and FY17 net profit should have been lower by 22 percent and 30 percent, respectively.
"A company’s annual accounts are sacrosanct as they are the bedrock for market valuation and determining senior management compensation. Suppressing NPAs and inflating net profit are cardinal sins, demanding the instant removal of the CEO, the Chief Financial Officer, head of the board’s audit committee and the auditor," said independent analyst Hemindra Hazari in a research note in June.
In FY18, Yes Bank had also classified two corporate accounts - Reliance Naval Engineering (RNE) and Matix Fertilisers & Chemicals - as performing when most banks having exposure had classified same as an NPA. In its defence, the bank said RNE was a performing account on its books and had adequate collateral.
"In India, bank CEOs can defy the banking regulator and merrily produce fudged accounts without any fear of censure. Worse, shareholders not only fail to punish the CEO, but actually reward the individual with another term," Hazari stated.
"Sadly, the Yes Bank episode totally exposes the hypocrisy of institutional investors, who are supported and advised by experienced analysts and who regularly preach the virtues of corporate governance and transparency. As custodians of public funds, their commitment is found wanting," he added.
In the meanwhile, RBI's actions till further notice will decide Kapoor and the bank's future fate.
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