The Kapur family had finally managed to get powers akin to their co-promoter Rana Kapoor in terms of board control and selection of directors for the bank on 30 January 2019
After fighting a number of courtroom battles for several years, dealing with bitter family disputes, blaming co-promoters for unfair practices and persistently putting a brave front on to gain board control in Yes Bank Ltd., on Saturday, in a dramatic move the family of the bank’s late co-founder Ashok Kapur-- Madhu Kapur, Shagun Kapur Gogia, Gaurav Kapur and Mags Finvest Pvt Ltd. ( a Madhu Kapur group entity) – decided to give up their status as Yes Bank promoters.
The Kapur family, which has been struggling to gain a bigger say in the functioning of Yes Bank ever since the demise of Ashok Kapur in 2008, had finally managed to get powers akin to their co-promoter Rana Kapoor in terms of board control and selection of directors for the bank on 30 January 2019.
Yes Bank, on Saturday, said that in a 28 May letter Madhu Kapur (who holds 1.12%), Gogia, Gaurav Kapur and Mags Finvest (which holds 0.30%) have given their consent to reclassify their shareholding in Yes Bank as ordinary public shareholders.
“The bank would take further necessary action to give effect to the above," said the bank in a regulatory filing.
The move by Kapur family comes almost three months after a State Bank of India-led equity consortium (formed with six other lenders) bailed out Yes bank through a Rs. 10,000 crore capital infusion at the government’s behest, which resulted in a majority stake going under SBI (48.21%) and other financial institutions. The move was aimed at keeping Yes Bank afloat after the private lender failed to raise enough equity capital to remain compliant with the central bank’s capital adequacy norms.
About two months ago, Yes Bank formed a new board, appointed a new CEO and a chairman.
And now, with Kapur and her family pulling out as promoters, Rana Kapoor and his family, who are under Enforcement Directorate (ED) custody for over a month now for alleged money-laundering, will remain as the sole promoters of Yes Bank, even though they do not hold any share in the bank.
Back in 2005, the two promoters of Yes Bank had agreed on an Articles of Association, which were amended in September 2017.
The AoA mandated that the board shall always follow the recommendation made by the two promoters to appoint any whole-time director. It also stated that the board may appoint one of its members as whole-time director, but even that would be subject to the AoA.
Things between Kapoors and Kapurs were fine until year after co-founder Ashok Kapur got killed in a terror attack in Mumbai in 2008.
The bank’s board had declined to appoint Gogia, daughter of Ashok Kapur, because it was felt she might not meet RBI’s fit-and-proper criteria.
In 2013, Madhu Kapur (widow of Ashok Kapur) and her daughter, Gogia, approached the Bombay high court, seeking greater say in appointing directors and wanted the court to uphold their right to jointly nominate directors.
Finally, in June 2015, the Bombay high court quashed the appointment of certain directors to the board, ruling that Madhu Kapur and Rana Kapoor had the right to jointly nominate director. The ruling was challenged before a division bench.
Problems were compounded on 17 September, 2018 when the banking regulator rejected the Yes Bank board’s request for a three-year extension in Rana Kapoor’s tenure, giving the bank until 31 January 2019 to find a successor.
In a 28 September, 2018 letter to the Yes Bank board, Madhu Kapur had said the appointment of two of the bank’s whole-time directors during the reign of Kapoor had been struck down by the June 2015 Bombay high court ruling. She had added that the earlier appointments of the two directrs were done without consultation with the co-founders from Kapur family.
Madhu Kapur had requested the board to not take any action contrary to the RBI directive and the court judgement.
In September 2018, after Madhu Kapur sold a part of her holding, Rana Kapoor had posted on Twitter, terming his shares as “diamonds".
Since then, Yes Bank has undergone drastic changes in terms of its board structure, key management, investor sentiment and the way it conducts lending business.
Firstly, Kapoor lost his board seat. Then all the promoter shares that were held by him and his family businesses got sold to the market as the Kapoor family had taken loans against those shares and the pledges had to be invoked after Yes Bank’s stock fell dramatically on the burses.
Since August 2018, Yes Bank’s stock has fallen from Rs. 404 to Rs. 26.85 apiece now.
After Kapoor’s tenure was cut-short by RBI, several board members resigned, citing lapses in corporate governance.
In October 2018, Kapoor and Kapur’s families decided to go for an out-of-court settlement by working on a plan that would have given equal control to both the parties. Even though Kapur’s family was a promoter group, it was not given an equal say in the bank’s board under Kapoor’s reign, allegedly because Kapur’s family members did not meet the fit-and-proper criteria required by the extant norms.
The move was aimed at removing uncertainties surrounding the bank’s succession plans, simplify the board’s functioning and possibly help burnish the bank’s stained credentials.
On 30 January the two estranged founders took the first step towards ending their decade-old feud, agreeing to appoint one director each on the board of the private lender under the terms of the settlement.
This did not solve the bank’s problems.
Even after Deutsche Bank’s former chief Ravneet Gill took over as Yes Bank’s new CEO in March 2019, the lender continued to struggle to raise enough equity capital to stay afloat. Due to provisioning, meet working capital requirements and create enough capital buffers for potentially huge loan losses in the subsequent quarters, the bank’s capital requirements brought it into a desperate situation.
As the bank failed to raise capital, the RBI had to impose a moratorium in March this year and the government had to rope in SBI and other lenders to provide a capital support to Yes Bank in lieu of a locked-in stake.
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