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Appointment of RBI director to Yes Bank board may be precautionary: Macquarie

Press Trust of India  |  New Delhi 

The Reserve Bank's appointment of an to the board of could be a precautionary move in view of the lender's weak capital position and stress in the balance sheet, investment said.

Earlier this week, the Reserve of India (RBI) appointed former R as an to the board of Bank.

Research said, even in the past, RBI had appointed additional directors to the boards of like and (LVB).

Both the have performed poorly and are in a beleaguered state.

"Many investors are fearing that there could be more skeletons in the closet of Bank, due to which RBI has taken this action. In our view, while there are problems in the bank, and balance sheet looks stressed with the capital position being weak, the move by RBI could be a precautionary move as is much larger than like Dhanlaxmi or LVB and any failure here could have serious systemic implications," it said.

RBI move, it said, could be cautious and pre-emptive here.

Also, the problems in Dhanlaxmi and LVB were far more serious; and RBI, in our view, appointed directors a bit late, whereas in they want their to be on the board before the situation goes out of control.

"Investors continue to be worried about Yes Bank's large exposure to and group of companies," it added.

In a statement, Yes Bank Friday said it "warmly" welcomes the appointment of

"This is a very positive and constructive measure aimed at further strengthening the board. This will not impede the smooth, independent and effective functioning of the bank in any way," it had said.

"RBI is supportive of a strong and successful Yes Band and we stand committed to serving the best interests of all our stakeholders."

The appointment has been made under sub-section (1) of the of the Regulation Act, 1949.

The can, according to this section, appoint additional directors "if the Reserve Bank is of (opinion that in the interest of policy or in the public interest or) in the interests of the company or its depositors it is necessary so to do, it may, from time to time by order in writing, appoint, with effect from such date as may be specified in the order, one or more persons to hold office as additional directors of the banking company."

"We have seen a lot of skepticism amongst investors. With CET1 (Common Equity Tier I) at 8.4 per cent and more write-offs looming, the bank desperately needs capital, otherwise problems could compound further," said.

"We aren't sure the investor appetite is strong enough, which makes capital-raising an enormous challenge. The only way out could be a PE investor bailing them out and getting a board seat in return," it added.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Fri, May 17 2019. 14:31 IST