RBI says ‘No’ to Yes Bank’s Rana Kapoor: Regulator has drawn the line, but its silence on the reasons can be damaging
RBI taking strict action is good for the banking sector, but its silence on the reasons for trimming of Rana Kapoor's term could be damaging for common shareholders
The Reserve Bank of India (RBI) has left the world guessing about the exact reasons why it did not approve another three-year term for Yes Bank’s Managing Director and CEO, Rana Kapoor. This came after the decision was left pending for about two weeks.
“Reserve Bank of India has vide letter dated 17 September, 2018 received today, intimated that Shri Rana Kapoor may continue as the MD & CEO till 31 January 2019, and the Board of Directors of the Bank are scheduled to meet on 25 September, 2018 to decide on the future course of action,” Yes Bank informed the stock exchanges late Wednesday night.
In other words, the RBI has said that Kapoor can continue only for four more months in the capacity of chief executive and needs to step down after that. The interesting aspect here is that no one knows why the regulator decided not to give an extension to Kapoor. Given that the RBI has left everyone guessing about the reasons for trimming Kapoor’s term, let us do the guess work:
Guess 1: The regulator wasn’t happy with the under-reporting of bad loans by the private sector bank and what RBI found with its inspection about the bank.
The bank had been found to have under-reported non-performing assets (NPAs) by over Rs 10,000 crore for two consecutive years. Now that’s one thing which can make RBI governor Urjit Patel and his colleagues at the central bank very angry. Hence, they didn’t want to offer Kapoor another term.
Of course, this isn’t the first time the RBI has done that. It wasn’t long back that the RBI said No to another term for Axis Bank MD and CEO, Shikha Sharma in the backdrop of rising NPAs. The regulator then wrote a letter to the bank asking the board to re-consider Sharma’s appointment.
Guess 2: For years, the regulator has been insisting that founder-promoters of commercial banks need to keep an arm’s length from their entities and eventually move away from controlling positions to leave the bank to a professionally-run board and management. Kapoor has held the CEO’s post for a very long time now and the regulator felt that it is time to draw a line. There’s nothing wrong in it. Banks aren’t institutions that should be subjected to skewed ownership or functionally under the control of a select few individuals, including founders.
Kapoor may not be guilty on these accounts but the central bank’s actions are justified in the context cited above. After all, banks are guardians of public money. By drawing the line at the right time, the RBI deserves kudos although it is only doing what it is expected to do.
But the problem here is that neither the lender nor the central bank has given reasons as to why Kapoor was denied another term.
The RBI's decision can send the right signals to the industry, but it might also lead to confusion and panic among common shareholders.
Founder-promoters and boards of other private sector banks may get the message that they should, but not necessarily the shareholders, particularly small shareholders. Remember, in June this year, Yes Bank’s shareholders had approved Rana Kapoor’s extension for another term. How will the bank explain the RBI’s decision to its shareholders?
It would have been better if the RBI explained the decision to the public in a manner that can be understood even without getting into the specifics that can be sensitive to the institution. After all, the occasions where the central bank denies a bank CEO another term post-shareholders approval are rare. The RBI’s big No will likely leave the Yes bank shareholders in a state of confusion and can even be damaging if shareholders switch to panic mode.
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