Yes Bank Ltd.’s profit missed estimates in the July-September quarter on higher provisions.


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The second-quarter earnings were reported amid uncertainty over the bank’s top management. Rana Kapoor, co-founder and chief executive officer, has been asked to step down by the end of January 2019 after the RBI denied him another three-year term. The process of finding a new CEO is underway. Gross non performing assets rose 37 percent in absolute terms on a quarter-on-quarter basis. As a percentage of total assets, the gross NPA ratio stood at 1.6 percent compared with 1.31 percent in the previous quarter. The net NPA ratio was at 0.84 percent compared with 0.59 percent.

Slippages during the quarter jumped to Rs 1,631.6 crore, which included a single account of Rs 631 crore. Rajat Monga, senior group president at Yes Bank, said that the jump in slippages was because of a one-off and the bank expects an “imminent” upgrade.

The bank disclosed an exposure of Rs 2,600 crore to the Infrastructure Leasing & Financial Services Ltd. group. The account is currently standard, said Monga, adding that no additional provisions have been made against this exposure. Monga said the exposure is to special purpose vehicles of the group and not to the parent firm.

Provisions rose 50 percent from the previous quarter to Rs 940 crore because of mark-to-market losses on its bond portfolio. Despite that, the bank’s provision coverage ratio fell 700 basis points to 48 percent. Explaining the low provision coverage ratio, Monga said the bank had chosen not to provide against the one large corporate account that slipped since they expect it to recover soon. If that happens, the provision coverage ratio will improve in the next quarter.

The bank also reiterated its credit cost guidance. For the quarter, credit costs were at 18 basis points for the quarter and 34 basis points for the half year ended Sept. 30, 2018. Advances growth during the quarter was at 61.2 percent. This is the third consecutive quarter that the bank has seen more than 50 percent year-on-year growth. Monga said the bank sees strong growth opportunities, including those emerging from the recent turmoil in the NBFC sector. While the bank did not purchase any NBFC portfolios this quarter, Monga said that the bank intends to do so in the third quarter.

Total deposits grew 41 percent. The bank’s current account and savings account ratio stood at 33.8 percent. The bank, which was planned to raise capital via a qualified institutional placement, will restart the process once there is greater clarity about the management transition.

Shares of Yes Bank closed 2.77 percent lower ahead of the earnings announcement. The stock has dropped more than 34 percent in 2018 so far compared with a 2.5 percent decline in the NSE Nifty Bank Index.

More News: Back in 2013, Rana Kapoor, co-founder, managing director and chief executive officer of Yes Bank, was on a high. The bank was about to finish a decade in existence. By all means, it had proved to be a successful entrant into the private banking space, which has seen enough new licencees crash and burn. Against that backdrop, when a brewing dispute between the bank’s two promoter families came out in the open, Kapoor acted from a position of strength.

At its core, the dispute was about the joint rights assigned to the ‘Indian Partners’ in the bank’s Articles of Association. Of the Indian Partners, Kapoor was the MD and CEO of the bank. The other partner, Ashok Kapur, had been tragically killed in the 2008 terror attacks in Mumbai. Kapur’s family argued that those rights, including the right to nominate three directors jointly, passed on to them. But Kapoor was not willing to yield any ground. This, despite the fact that the two families had not only been partners in Yes Bank but were also closely related. The dispute eventually went to the Bombay High Court, which upheld the joint rights of the Indian Partners in a 2015 order.

“It is equally incorrect to suggest that the Plaintiffs have, only on account of Ashok Kapur’s demise, transmogrified into some sort of non-promoter capacity,” said one part of the order. Kapoor appealed. That appeal is still pending but there is no stay on the ability of the late Ashok Kapur’s family to exercise their joint nomination rights. Five Years Later…
In 2018, it is Kapoor who now has little choice but to try and find middle-ground with the late Ashok Kapur’s family.

A failure to do so, will mean uncertainty not just for the bank he built, but his own rights as a promoter of the bank.
Kapoor’s position has weakened substantially over the past one month. On Sept 19, the bank informed stock exchanges that the Reserve Bank of India had refused to give Kapoor another three-year term at the helm of the bank. A subsequent request by the bank’s board to extend his term till September 2019 was also turned down. Kapoor must now step down as MD and CEO by end of January.

A search process for the new CEO has begun. But the appointment can only be concluded with the agreement of both Indian Partners. The bank’s board has also recommended two executive director appointments – Rajat Monga and Pralay Mondal. These will also need the consent of both partners.

Some uncertainty may emerge on Kapoor’s own directorship on the board of the bank as well. According to the Articles of Association, Kapoor has a non-retiring seat on the board of the bank. Section 110 of the Articles says: So long as the Indian Partners hold along with any of their affiliates directly or indirectly, atleast 10 percent of the issued and paid up capital of the Company, the Indian Partners shall have the right to recommend the appointment of three directors collectively referred to as the “IP Representative Directors.”

Section 111 says that Ashok Kapur and Rana Kapoor are deemed as IP representative directors. Further in Section 121 pertaining to ‘Rotation of Directors’, the Articles say: Two of the IP representative directors as well as the Rabo representative director shall not be liable to retire by rotation.

But since the nomination rights are joint, Kapur’s family can choose to withdraw their support of Kapoor’s seat on the board as an IP representative, said a person familiar with the matter. It is not clear why the family has not used this leverage in their dispute so far. If they choose to use it now, not only would Kapoor have to step down from the board, he will also not be able to appoint a nominee of his own. Incidentally, Ashok Kapur’s family has not been able to appoint their nominee until now.


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To be sure, the bank has not disclosed any regulatory reservations regarding Kapoor’s position on the bank’s board. After years of estrangement, the two sides have met at least three times in recent weeks. Early discussions have revolved around acknowledging the Kapur family’s joint nomination rights. Concerns raised by the Kapur family about inadequate information provided to them have also been noted and senior members of the management team have briefed the family about the bank’s operations.

But a formal agreement between the two sides is yet to be arrived at. To secure that decision, Kapoor who would have to climb down from the position he had taken back in 2013 and acknowledge the joint nomination rights of the Ashok Kapur family. Once that in-principle agreement is reached, the two sides would also need to agree on a nominee for the MD and CEO post and, subsequently, on the appointment of IP nominee directors on the board.

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