Yes Bank Board In Fort, Mumbai (Photograph: Dhiraj Singh/Bloomberg)

RBI Appoints R Gandhi As Yes Bank’s Additional Director

The Reserve Bank of India appointed R Gandhi, a former deputy governor of the central bank, on the board of private lender Yes Bank Ltd., a rare decision usually taken when a lender needs close regulatory supervision.

The regulator named Gandhi as an additional director with immediate effect for two years till May 13, 2021 or till further orders, the bank said in an exchange filing.

The RBI is empowered under the Banking Regulations Act to appoint one or more additional directors on a private lender’s board in the interest of the bank or its depositors. Section 36AB says that such a step may be taken if the RBI believes that it is necessary to do so “in the interest of banking policy or in the public interest or in the interests of the banking company or its depositors...”

The regulator last appointed E Madhavan on Dhanlaxmi Bank Ltd.’s board in May 2017. The central bank announced his exit from the board in October 2018, five months before his term ended. The Lakshmi Vilas Bank Ltd., too, has had an RBI-appointed director on the board.

Yes Bank has seen management churn with the RBI asking promoter Rana Kapoor to step down as managing director and chief executive officer by Jan. 31. It was widely believed that divergence in bad loan reporting for two consecutive years and a weak compliance culture at the bank were reasons behind RBI’s decision not to extend Kapoor’s term. Kapoor, while no longer an executive at the bank, remains one of the promoters of the bank. He, together with the family of late co-founder Ashok Kapur, have rights to nominate three members to the Yes Bank board.

Ravneet Gill, former India chief of Deutsche Bank, took over as Yes Bank’s CEO on March 1.

Weeks after Gill took charge, Yes Bank reported its first-ever quarterly loss. The lender reported a net loss of Rs 1,506 crore for the January-March period because of higher provisions against dodgy loans. Its gross non-performing asset ratio rose to 3.22 percent in March from 2.11 percent in December 2018.

Gill also announced a watchlist of over Rs 10,000 crore, comprising low-rated loans at the risk turning into NPAs. This, analysts said, could be a potential pain point for the bank. Many of them downgraded the stock following the fourth-quarter results. Last week, BloombergQuint reported that the bank’s exposure to the Anil Ambani group is close to 50 percent of its common equity tier-1 capital.

The bank is also running low on capital and needs to raise funds imminently. Low levels of capital adequacy have prompted rating agencies to downgrade the lender.

Analysts React

Responding to the RBI’s decision, analysts noted that this will help strengthen governance at the bank.

Suresh Ganapathy, analyst at Macquarie Capital, said the move is cautious and pre-emptive.

“While there are problems are in the bank and balance sheet looks stressed with capital position being weak, the move by RBI could be a precautionary move as Yes Bank is much larger than banks like Dhanlaxmi Bank or Lakshmi Vilas Bank and any failure here could have serious systemic implications. Hence RBI could be cautious and pre-emptive here,” Ganapathy wrote in a note. He added that capital raising will be a challenge for the bank and needs to be monitored closely.

We have seen a lot of scepticism amongst investors. With CET-1 at 8.4 percent and more write-offs looming, the bank desperately needs capital, otherwise problems could compound further. We aren’t sure the investor appetite is strong enough, which makes capital-raising an enormous challenge. The only way out could be a PE investor bailing them out and getting a board seat in return  
Suresh Ganapathy, Analyst, Macquarie Capital

Equirus Capital added that the move is likely to strengthen corporate governance at the bank.

“We believe, considering the marginal capital adequacy of the bank and possibility of them not being able to raise capital in the near term, RBI has taken a precautionary measure,” said Equirus Capital in a note.