Corporate governance issues in “Yes Bank”

Case: - “Yes Bank” Limited is an Indian public bank headquartered in Mumbai,

India and was founded by Mr. Rana Kapoor, Harkrit singh and Mr. Mr. Ashok
Kapur in 2004. After Harkrit singh left “Yes Bank”, the two were running a bank.
Mr. Rana Kapoor became the CEO and Mr. Ashok Kapur chairman of “Yes Bank”. In
the 2008 Mumbai attack Ashok Kumar died and later his wife Madhu Kapur took
the position of Mr. Ashok Kapur and the two were main Key managerial person
involved in running the bank but slowly Mr. Rana Kapoor started making Madhu
Kapur away from the operation of the bank also he removed the name of Madhu
Kapur from the shareholder list and the director appointed by Madhu Kapur was
never passed by board , Due to which she had a very less control over the entity , in
the year 2015 RBI came to know about some irregularity in the entity during the
normal Assessment review and several notice were given to the bank by the RBI
regarding the same. “Yes Bank” was doing well till 2018 with an increase profit rate
of 35% per year as per its financial reports. But after finding and investigating the
irregularities RBI denied the extension of Mr. Rana Kapoor position as CEO and
Ravneet Gill was appointed as CEO of “Yes Bank” but despite this irregularities
continued and it came to the knowledge of public in the month of feburary 2020,
when one of the independent director of audit committee Mr. Uttam Kumar
Agarwal Resigned citing deteriorating corporate governance standards and
compliance failure in bank , immediately after this share price of “Yes Bank”
observed a downfall of 85%. On 5 March 2020, the Reserve Bank of India has taken
control of the bank which had an excessive amount of NPAs, in an attempt to avoid
the collapse of the bank, later reconstructed the board and named Prashant Kumar
former Chief financial officer of SBI as new MD & CEO at “Yes Bank”.

Issues in “Yes Bank”: - RBI which is a regulatory authority of all bank in

the year 2015 during the BJP government was conducting Asset quality review
where all banks were asked related information of loans granted to the customers
and NPA’s, in order to clean up the rising toxic loan problem in the country in
banking sector. During that assessment RBI came to know about the differences
between the RBI assessment of bad loans and the one reported by the bank in their
quarterly result and the mains observation by RBI in the year 2015 assessment were:
-

1- “Yes Bank” consistently showed NPAs below 2%, The gross NPAs reported
by the bank in Financial year 2016 were at Rs 748.98 Crores but NPAs
identified - by RBI were at Rs 4925.68 Crores. A 557% higher NPA was
observed during the assessment with respect to actual reported. The Gross
NPA % disclosed by “Yes Bank” as on March 2016 stood at 0.76%. This Gross
NPA actually should have been at 5.01% as per RBI observations.

2- RBI also observed very astounding deviation of 1166% for Net NPAs. The Net
NPA % disclosed by “Yes Bank” was at 0.29% for Mar 2016, which according
to RBI should have been 3.67%.

Analysis: - Here, in the Aforementioned case i am of the view that following are
the Reasons which triggered the failure of “Yes Bank”: -

1- Poor compliance culture.

2- Serious violations of statutory and regulatory guidelines.
3- Persistent governance and compliance failure
4- Series of serious lapses in the functioning and governance
5- Highly irregular credit management practices, serious deficiencies in
governance

Some of the act of the CEO which shows not only bad governance but also
contributed towards the failure of “Yes Bank” are as follows: -

1- After the death of Mr Ashok kapur his wife was supposed to take his place as
all the shares, voting right and control over the “Yes Bank” was transferred to
her but it was indirectly denied by Mr. Rana kapur as he started making
 Madhu kapur away from the operation of bank and also her name was
removed from the shareholder.
2- Madhu kapur had a power to appoint director and she was denied to exercise
it indirectly as the board were not passing appointment because of the
influence of Mr. Rana Kapoor which resulted in control of the “Yes Bank” in
one hand.
3- Aggressive amount of loans was given by the Bank to the business entities
who are on the urge of bankruptcy like Essel Group, DHFL, Reliance Capital
& Reliance defence (Anil Ambani), CCD
4- Collateral against granting of loan was not checked properly or ignored and
also in many cases they were not sufficient enough to recover loan amount in
case of default which raises a question on a functioning of legal department.
5- Favourism- Credibility of some of the investors were ignored even after
adequate information of such investors was available.
6- Process not followed for the capital Raising Fund.

KMP Responsible for deteriorating Corporate Governance: -

1- Mr. Rana Kapoor Former CEO

2- Mr. Ravneet Gill- Former MD/CEO
3- Dr Rajiv Uberoi- Senior Group President Governance and Controls
4- Mr Sanjay Nambiar- Legal Head and BOD
5- Board of directors.
6- Independent Director

Conclusion
Key Managerial Persons plays a important role in maintaining a good governance in
the organization they shall act in accordance with the Articles of the Company,
subject to the applicable provisions of the Companies Act and their act must be in
good faith in order to promote the objects of the Company for the benefit of its
members as a whole, and in the best interests of the Company, its employees, the
shareholders and other stakeholders. Along with KMP, Board of the organization is
also responsible.
Board should be able to exercise objective independent judgement on corporate
affairs, Board should apply high ethical standards. It should also protect the interests
of stakeholders.
Here in this Case act of both the former CEO and board was not justified and it
was against the Ethics of corporate governance as well as statutory compliances, the
manner in which the state of affairs of the company were being conducted was
deteriorating corporate governance standards and compliance failure in bank it was
Very critical matter the overall interest of “Yes Bank” and millions of its small and
large depositors, investors, shareholders and all others stakeholders.
It was Possible to avoid the crisis of “Yes Bank” if these Principles were
implemented properly by the executive people, committee or KMP: -

 Roles & Responsibilities - There must be clarity regarding individual

responsibilities.
 Structure & Composition – An executive committee needs to have the right
people, having particular regard to each individual’s background, skills and
experience.
 Purpose & Strategy – The executive committee must set the vision, purpose
and strategies of the organization.
 Risk Management - By putting in place an appropriate system of risk &
internal controls, executive committees can help to attain objective of the
organization.
 Organizational Performance - The executive members should determines
and assesses performance regularly basis i.e. weekly or monthly.
 Accountability – The executive committee must ensure that there is a flow of
information to the board that aids decision-making; there is transparency and
accountability to external stakeholders and to employees.
 Culture & Ethics - The executive committee sets the Principle for ethical and
responsible decision-making throughout the organization