One cannot just induct his or her relatives on the board of a bank: Rana Kapoor

Interview with MD & CEO, YES Bank

Rana Kapoor, co-founder, managing director and chief executive of YES Bank, speaks to Somasroy Chakraborty on the ongoing dispute with the late co-founder Ashok Kapur's family. Edited excerpts:

Madhu Kapur (Ashok's widow) has alleged she was not consulted, as mandated by the bank's Articles of Association, on appointment of directors. Is this true?
The appointment of directors is the responsibility of the board of directors. No shareholder, especially non-board ones, can direct the bank or its board on whom they should appoint. The appointment has to be in line with the fit and proper guidelines of the Reserve Bank of India (RBI) and recommendations of the Ganguly committee (on corporate governance). There are circulars dated June 20, 2002; June 25, 2004 and February 28, 2005. One cannot just induct his or her relatives on the board of a bank. Bank governance is completely driven by RBI's regulations and not by the shareholders. YES Bank has always adhered to the guidelines of RBI while appointing directors on its board.

Does it mean the bank's Articles of Association contradicts RBI's guidelines?

Articles of Association is the opening position of the bank that define its purpose and lays out the tasks, including the process for appointing directors. There have been subsequent regulations after the bank was formed and those rules have to be dovetailed. For instance, the guidelines on ownership and governance in private sector banks came on February 28, 2005, after YES Bank was formed. (YES Bank was incorporated in November 2003 and received a banking licence in May 2004).

Did the bank's board refer Madhu Kapur's request seeking a board position in 2009 to RBI? Will the board discuss her recent request to appoint her daughter as a board member?

The request from Madhu Kapur was discussed by the board at that time.It was found not in accordance with the fit and proper guidelines of RBI and the board decided to reject it. Subsequently, as you know, she sent a request on June 5 to me and YES Bank's chairman to induct her daughter (Shagun Kapur Gogia) as her nominee board member. We offered her a resolution that it would be discussed in the next board meeting, on July 24.

Madhu Kapur has moved the Bombay High Court against the appointment of three directors and sought a stay on the bank's annual shareholders' meet. Why is YES Bank conducting a paper ballot for appointment of these directors, as the appointments will be subject to the court's final order?

The court had refused to order a stay. In the annual general meeting, the bank sought shareholders' approval for 10 resolutions, of which seven were passed unanimously or had a majority of shareholders voting in favour. On the resolutions seeking appointment of the three directors, Madhu Kapur conveyed her objection and sought a poll. The poll has been agreed to as laid down in the Articles of Association. The counting process is going on and the results will be declared on Monday. The process is being conducted by the two appointed scrutineers and the bank has also agreed to allow Shagun Gogia as an observer to the process. It cannot be any better or more transparent. So, to answer your question, YES Bank has only responded to the one-sided dispute raised by Madhu Kapur.

The promoters (Rana Kapoor and Madhu Kapur factions) currently hold 25.72 per cent stake in YES Bank. Do you think this issue will pose a challenge in reducing the promoters' stake in the bank to the prescribed 10 per cent?
In RBI's guidelines on new bank licensing, new banks will be allowed to reduce their stake to 15 per cent over a period of time. Also, we have now got shareholders' approval to raise up to $500 million, which will probably dilute the promoters' stake by three to four per cent. All I can say is the promoters' stake in the bank has been steadily coming down. I cannot comment if there will be challenges or not.