Yes Bank: Onus is on RBI to clear the air on why it cut short Rana Kapoor’s tenure

Even then, the contents and rationale behind the RBI communique are still not available at large and stakeholders are left to market speculations 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 stories 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? Did RBI come to these conclusions based on the happening of a special event or was it known to them for some time period prior to their directive?

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 as opposed to other banks?

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 any opportunity of being heard was granted to the CEO.

The action taken by RBI raises more questions and confusion in an already turbulent time for financial services companies and banks.

CEOs of three of the top five private banks have had their wings curtailed due to actions by various governmental agencies in the past six months or so. There has been news of impending defaults by major financial sector institutions like IL&FS, not to mention the peculiar acquisition of IDBI Bank by LIC.

In these turbulent times, it is imperative that market regulators are more transparent and forthcoming with respect to their regulatory actions.

In the instant case of Yes Bank, Rana Kapoor is not only the MD of the bank, he is also the promoter who founded the bank. Further, the situation is complicated in relation to finding a successor because disputes exist between the bank’s promoters, Rana Kapoor and Madhu Kapur.

Meanwhile, the stock of Yes Bank has already lost one-third of its value with stakeholders having no visibility to a future course correction at the bank. The investors of Yes Bank would have the following questions to RBI: If the issue is around divergence in reporting of NPAs, it is pertinent to note that Yes Bank is not alone in reporting divergence in their NPAs. Major lenders such as Bank of India, SBI, HDFC Bank, ICICI Bank and Axis Bank, among others too are guilty. Should we expect similar actions against all these banks? Does RBI think that the removal of the CEO would solve governance issues at the bank?

It is imperative for RBI to provide market participants with an insight into these questions. For an efficient functioning of the market economy, the regulator needs to be more transparent in their functioning. It should avoid sudden knee jerk reactions and should aim at building more credible and predictable regulatory enforcement regime.