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YES Bank: Looking for answers from RBI

Finsec Law Advisors

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The recent happenings in the case of YES Bank, where the RBI has sent a directive cutting short the tenure of Mr. Rana Kapoor, the MD and CEO, till January 31, 2019, are novel. There has been no press release or any public information available to the stakeholders in relation to the rationale and reasons behind this decision. Only on account of being a listed company, YES Bank had disclosed the receipt of a communique from RBI. Even then, the contents and rationale behind the RBI communique are primarily based on ‘sources’ quoted by business journalists.

Some of these ‘source’ based media reports have highlighted three major reasons for the RBI’s decision: "Weak compliance culture in YES Bank", "Weak Governance in YES Bank" and "Wrong asset Qualification". Believing these media reports to be true, it is even more perplexing how RBI came to these conclusions: Was there a special audit or investigation conducted by RBI which highlighted these concerns? If yes, what actions has RBI taken in the past to prevent these governance issues and how far these governance issues were unique to YES Bank? And lastly, whether RBI had undertaken any inquiry in relation to the role of CEO, how far the shortcomings of the bank can be directly attributable to the CEO and whether RBI believes removal of the CEO would solve the governance issues. If the issue is around divergence in reporting of Non-Performing Assets (“NPAs”), the investors would like to know if any actions are proposed to be taken on other major lenders which had reported divergence in their NPAs.

The case of YES Bank is even more peculiar as the tussle between the promoters, Mr. Rana Kapoor and Ms. Madhu Kapur, complicates the task of finding a successor. For an efficient functioning of the market, the regulator needs to be more transparent in its functioning. It should avoid sudden knee jerk reactions and should aim at building a more credible and predictable regulatory enforcement regime.