Why RBI said no to Yes Bank on Rana Kapoor’s extension

New Delhi: As early as April this year, the Reserve Bank of India (RBI) raised issues of corporate governance and “serious lapses” with the functioning of Yes Bank Ltd, according to documents reviewed by Mint. In subsequent comments, RBI observed “persistent governance and compliance failure reflected by the bank’s highly irregular credit management practices, serious deficiencies in governance and a poor compliance culture”.

It was equally critical of Yes Bank’s managing director and chief executive Rana Kapoor and made adverse observations about his management of one of India’s largest private sector banks.

“The serious lapses in the functioning of and governance in the bank and, in particular, the poor compliance culture, other serious violations of statutory and regulatory guidelines during the past three financial years, notwithstanding the subsequent corrective actions stated to have been initiated by the bank, reinforce our grave concern and regulatory discomfort with the role of the incumbent MD & CEO in the governance, management and superintendence of the affairs of the bank,” RBI said, as it declined a request from the bank to reappoint Kapoor.

RBI had on 17 September asked Yes Bank to end Kapoor’s tenure as managing director and chief executive on 31 January 2019, ignoring the bank’s plea to extend his term by three years. In June, Yes Bank sought a three-year extension for Kapoor till 31 August 2021, but the regulator disregarded the request and instead asked the lender to draw up a succession plan.

Spokespersons for RBI and Yes Bank did not respond to queries emailed on Wednesday evening.

“RBI has been very critical of the functioning of Mr Kapoor and Yes Bank,” a person aware of the central bank’s adverse views said on condition of anonymity.

Yes Bank had about ₹ 2.23 trillion in deposits and had extended loans and advances of up to ₹ 2.40 trillion as of September-end.

The bank’s board has recommended clawing back of bonuses paid to Kapoor for the two years ended 31 March 2016, after the adverse observations made by RBI, Mint reported on 15 October.

The board also recommended that no bonuses be paid to Kapoor for fiscals 2016-17 and 2017-18 and did not propose any bonus for the following year. It has recommended not raising Kapoor’s salary for 2017-18, as well as for the current year.

The board also communicated to RBI the decision made at its 25 September board meeting to engage a consulting firm for a comprehensive risk, governance and compliance review.

Yes Bank’s search and selection committee has finalized an initial list of more than a dozen candidates as it looks for a successor to Kapoor, Mint reported on 27 October.

On 11 October, the bank hired Korn Ferry to assist the committee in finding a successor to Kapoor, who has been at the bank’s helm since its inception in 2003.

Yes Bank also appointed former Insurance Regulatory and Development Authority of India (IRDAI) chairman T.S. Vijayan and former State Bank of India chairman O.P. Bhatt on 5 October as two external experts in its search and selection panel to shortlist a successor to Kapoor.

This comes at a time when Yes Bank’s estranged promoters, Rana Kapoor and Madhu Kapur, have initiated moves to reach an out-of-court settlement, Mint reported on 8 October.

Kapoor has also proposed Madhu Kapur that they combine their stakes and form a joint promoter group, a move that will allow the CEO to nominate himself or one of his affiliates on the Yes Bank board even after his exit, Mint reported on 19 October.

At the end of June, Kapoor held a 4.34% stake and Madhu Kapur 7.62%. Other promoters entities are Yes Capital (India) Pvt. Ltd (3.28%), Morgan Credits Pvt. Ltd (3.05%) and Mags Finvest Pvt. Ltd. (1.7%).