Bhat's resignation came a day after non-executive chairman of the bank Ashok Chawla, a former finance secretary and a past chairman of the fair trade body Competition Commission and the telecom watchdog Trai, suddenly resigned after his name cropped up in the Aircel-Maxis corruption case, being probed by the CBI.
Bhat's connections with the foreign lender, whose chief executive is among those shortlisted in an advisory role, has led to his resignation, the sources explained.
After Bhat's exit, TS Vijayan, the former chairman of the insurance regulator Irdai, is the only remaining external member in the search and selection committee.
The search committee has had three meetings since it was constituted and the last was on Tuesday, the sources said.
The shortlisted names include the head of a foreign bank having a relatively large presence in the country, the chief of a state-run bank apart from the heads of some private sector lenders.
While one source put the number of shortlisted names at five, another put it at 10, saying it will be now brought down to five.
The bank will decide on the final name by the third week of December, at least a month before the RBI deadline of January 31, they said.
In a surprise move, the RBI in September had curtailed the term of Kapoor, who owns around 11 percent in the bank, to January 31, 2019.
Kapoor, one of the promoters of the fifth largest private sector lender, was the second bank chief whose term had been cut short after Axis Bank's Shikha Sharma.
The regulator did not offer any reasons for its action But both Yes Bank as well as Axis Bank were found to have under-reported their non-performing assets pile by over Rs 10,000 crore each for two consecutive years.
Yes Bank had requested RBI for extending Kapoor's term by over eight months, and announced the five member selection panel consisting of three board members and two external ones. But the central bank refused to budge and asked him to leave by January 31.
Internal candidates from the bank who are likely to be considered include senior group presidents Rajat Monga and Pralay Mondal,one of the sources said, adding they are yet to be interviewed by the selection panel.
The panel has crystalised the broad criteria which it will be looking at, which includes the necessity for the candidate to have corporate banking experience given Yes Bank's asset book focus, experience in capital raising and also a clean reputation which will ensure a sail-through with the regulator, the source said.