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