RBI needs to be more transparent on decisions like curtailing term of Yes Bank's Rana Kapoor: Jefferies

Mumbai: There is a need for the Reserve Bank to be more transparent on decisions like curtailing the term of Yes Bank’s managing director and chief executive Rana Kapoor, a foreign brokerage said on Friday. This comes two days after the private sector lender reported that the RBI had not found any divergence or under-reporting of non-performing assets for the fiscal year 2017-18. “..the question of why the RBI ordered Kapoor to go remains unanswered. We believe it is time for the RBI to increase transparency on decisions that have a significant impact on minority shareholders,” Jefferies, the brokerage, said in a note. The brokerage pointed out that the Yes Bank stock, which gained since the zero divergence news, had lost 30 percent following the RBI curtailing the term of Kapoor in September last year. It can be noted that the terms of both Kapoor as well as Shikha Sharma, the head of its larger rival Axis Bank, were curtailed by the regulator. No reasons were communicated officially for the action. [caption id=“attachment_5595711” align=“alignleft” width=“380”] Representational image. Reuters.[/caption] Both the banks were found to have underreported their the stock of NPAs by a cumulative Rs 10,000 crore each for two consecutive fiscal years by the RBI, leading to wide speculation if this was the reason for the removal. The brokerage said it thought the refusal to allow the reappointment of Kapoor by the RBI was taken by it as a “black swan” event. “However, with the RBI’s audit report now citing ’nil’ NPA divergence, we seem to have mistaken a mere crow for a swan,” it said. It added a divergence number higher than last year’s would have been a worry, but the latest disclosure of zero divergence has come as a “shock”. According to earlier reports, sources had said the RBI had cited “serious lapses” in governance and a “poor compliance culture” at Yes Bank as reasons for its “regulatory discomfort” in allowing Kapoor to continue to head the lender. The bank has displayed “highly irregular” credit management practices, the regulator had said. Sources citing a RBI letter to the then bank chairman had said the regulator also wrote about its “concern” relating to a steep hike in Kapoor’s remuneration by the board while seeking a three-year reappointment, saying it was in defiance of its earlier direction to trim CEO bonuses if asset quality was not good. The central bank said these happenings reinforce its “grave concerns and regulatory discomfort with the role of Kapoor in the governance, management and superintendence of Yes Bank.” The bank has named foreign lender Deutsche Bank’s India head Ravneet Gill as the replacement for Kapoor, who will be taking charge by 1 March. The brokerage report said the bank will now be able to approach the capital markets to replenish its CET 1 ratio and return to the original growth model, the brokerage said. It said the RBI will approve both Ashish Agarwal (Chief Risk Officer) and Rajat Monga’s elevation to the board as executive directors, which may be viewed favourably by the markets. “We will wait to see whether Kapoor seeks a non-executive board seat, which does not require RBI approval,” it added. The bank scrip closed 1.04 percent down at Rs 218.70 a piece on the BSE, as against a 0.19 percent correction on the benchmark on Friday.