Shareholders can't dictate directors' appointment, says Rana Kapoor

Says the board has to meet fit-and-proper guidelines of RBI

The appointment of directors on a bank's board cannot be dictated by shareholders, as it has to meet the fit-and-proper guidelines of the Reserve Bank of India (RBI), says Rana Kapoor, co-founder, managing director and chief executive of YES Bank. The promoters of the bank had locked horns over board-level appointments and the dispute spilled over to the private lender's annual shareholders' meet yesterday.

"No shareholder, especially non-board ones, can direct the bank or its board on who should be appointed as directors... One cannot just induct his or her relatives on a bank's board. Bank governance is completely driven by RBI's regulations and not by shareholders. YES Bank has always adhered to the RBI guidelines while appointing directors on its board," Kapoor told Business Standard.

The dispute started in early 2009, a few months after Ashok Kapur, who co-founded YES Bank with Kapoor, died in the 26/11 Mumbai terror attack. His widow, Madhu Kapur, sought a board position. This was rejected by the bank, citing RBI's fit-and-proper criterion. Earlier this month, Kapur sent a request to induct her daughter, Shagun Kapur Gogia, as her nominee board member. While the bank decided to discuss the proposal at its next board meeting on July 24, Kapur and her two children moved the Bombay High Court for a stay on the bank's annual general meeting (AGM).

Kapur also alleged she was not consulted, as mandated by the bank's articles of association, on appointment of three directors - Diwan Arun Nanda, Ravish Chopra, and M R Srinivasan. While the court refused to order a stay on the AGM, it said the directors' appointment would be subject to the court's order. At the AGM, the resolutions to appoint the three directors were opposed by several shareholders and the proposals were put to vote. The outcome of the paper ballot will be announced tomorrow.

Rana Kapoor said the bank had to take into account the subsequent regulations that were released by RBI after its formation while appointing directors. "The 'articles of association' is the opening position of the bank... 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," he said.