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Business News/ Opinion / Online Views/  Yes Bank: Ego war costs promoters `2,000 crore
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Yes Bank: Ego war costs promoters `2,000 crore

Even as Yes Bank maintains that Shagun Gogia’s nomination is being rejected on professional grounds, the ongoing spat is eroding the bank’s stock value

An ego war is a silly reason to lose Rs2,000 crore. Photo: Abhijit Bhatlekar/Mint (Abhijit Bhatlekar/Mint)Premium
An ego war is a silly reason to lose Rs2,000 crore. Photo: Abhijit Bhatlekar/Mint
(Abhijit Bhatlekar/Mint)

The Yes Bank Ltd stock has lost at least 40% in the past few weeks, more than double the loss of BSE’s banking index Bankex. Close to 8,000 crore worth of investors’ wealth has evaporated, and the two promoters of the bank, Rana Kapoor and the successors of the late Ashok Kapur, have lost around 2,000 crore. One of the reasons behind the value erosion could be the Reserve Bank of India’s (RBI) monetary tightening measures to protect the depreciating rupee but many believe the fight between the two promoters contributed.

Kapoor, managing director and chief executive officer (CEO), and his family hold a 13.72% stake in the bank, and Kapur’s successors 11.92%.

Madhu Kapur, the widow of Ashok Kapur, moved the court in the first week of June. She and Rana Kapoor's wife Bindu are sisters. Ashok Kapur was killed in the November 2008 terror attack in Mumbai. Madhu Kapur's contention is her daughter Shagun Gogia should have got a seat on the board of the bank but she had been denied that. The family also feels the bank is not giving recognition due to the late Ashok Kapur for its success.

Yes Bank maintains that the rejection of Gogia’s nomination is purely a professional decision. According to the bank’s management, she is considerably short on expertise in any particular area prescribed by RBI and does not have a proven record.

Rana Kapoor and Ashok Kapur, two professionals, along with Rabobank, set up Yes Bank in 2003 when India opened its doors to a couple of new private banks a decade after opening up the sector. They held 26.125% each, Rabobank held 20%, a few select professionals of the bank held 2.75%, and the rest was held by three private equity investors. Originally, there was a third banker in the founding team, Harkirat Singh, but he left abruptly even before the bank disbursed its first loan. Following the public float of the company in 2006, a private placement and a qualified institutional placement subsequently, the promoters’ stakes became lower and Rabo exited the bank.

The memorandum and articles of association of Yes Bank say that as long as the Indian partners hold at least 10% of the share capital of the company, they will have the right to recommend the appointment of three directors. Collectively, they are referred to as the “IP (Indian partners) representative directors". Apart from the IP directors, the Indian partners have the right to propose the names of the first three independent directors.

It also says the Indian partners will have the right to recommend the names of the chairman and the CEO and managing director of the bank. It said Ashok Kapur would be the first chairman and Rana Kapoor the first CEO and managing director. It’s another matter that in the case of a bank, the promoters cannot decide on the appointment of its chairman and CEO—they can only recommend and RBI clears such appointments. RBI had strong reservations about clearing Ashok Kapur's salary package, which was on a par with Rana Kapoor. It was cleared only after Yes Bank cut the package.

The Indian partners have the right to recommend three directors. After Ashok Kapur's death, there is only one director at the level of an Indian partner—Rana Kapoor. Then what’s the problem in getting Gogia as a director? Well, the bank’s board has not found her “fit and proper".

Who is a fit and proper candidate? RBI’s norms on this are based on the recommendations of the Ashok Ganguly Committee on corporate governance in banks. A fit and proper candidate should normally be a graduate, but this can be relaxed in the case of a director representing farmers, depositors, artisans, etc. The person should be aged between 35 and 65 and should not be a member of Parliament or a legislative assembly. A candidate also should have high integrity. Finally, the person should have experience in the relevant field. Although there is no timeframe specified for such experience, a decade-long experience is expected and this is why the floor for age is pegged at 35 years.

Gogia passes all tests except for the experience bit. Meanwhile, Yes Bank has appointed four new directors—Brahm Dutt, a former secretary for roads, transport and highways in the ministry of shipping, road transport and highways, and three of its senior executives. Even after their appointments, there will be 11 members on the board and a bank can have up to 15 members. So, if Gogia is not found suitable, both Madhu Kapur and Rana Kapoor can jointly nominate somebody else on the board till Gogia gains experience.

Yes Bank’s affidavit says the right to nominate directors on the board should lie only with the two Indian partners of the bank—the late Ashok Kapur and Rana Kapoor— and not with their successors or legal representatives, as each of the partners can have a large number of heirs and it is impossible to require a large and indeterminate number of people to collectively concur on the recommendation of names for appointment as directors. This may be technically correct, but since Ashok Kapur has only two children and wife as successors and three is by no means a large number, it does not seem to be very difficult to agree on nominating a person on the board.

The bank also says that omission of Ashok Kapur from the promoter shareholding in its annual report was to avoid the reporting of the shareholding folio-wise as Madhu Kapur was transferring the shares into multiple folios. Without getting into the merit of the argument, what’s the harm in reinstating his name, if that can save the bank’s stock from eroding its value further? An ego war is a silly reason to lose 2,000 crore.

Tamal Bandyopadhyay keeps a close eye on everything banking from his perch as Mint’s deputy managing editor in Mumbai. He is also the author of A Bank for the Buck, a book on HDFC Bank. Email your comments to bankerstrust@livemint.com

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Published: 11 Aug 2013, 03:39 PM IST
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