Shareholders are wary of the possibility of further erosion in Yes Bank's stock as the bank is set to dilute its equity to add to its loan loss provisions
The Reserve Bank of India's appointment of former deputy governor R Gandhi as additional director to Yes Bank could help the management take on investor queries more efficiently. Placing Gandhi on the board may be seen as a way of strengthening credibility as the bank recovers from the hasty exit of its chief executive Rana Kapoor on the orders of the RBI earlier this year.
Shareholders are wary of the possibility of further erosion in Yes Bank's stock as the bank is set to dilute equity to add to its loan loss provisions, The Economic Times reported.
Gandhi was the head of the banking operations and development when he was with the RBI.
"This is a little pre-emptive move because this is a large bank and it requires the right kind of people on the board to ensure that depositor interests are protected and things are kept in check," Suresh Ganapathy, an analyst at Macquarie Securities told ET.
"This is the right thing to do because any adverse impact on the bank or a run by depositors could have system-wide implications. It is clear that the bank's balance sheet is stretched and NPA recognition is an issue," he added.
This is the third time that the central bank has made such an appointment. RBI had previously appointed directors on the boards of Dhanlaxmi Bank and Lakshmi Vilas Bank.
Ravneet Gill was appointed as the chief executive officer of Yes Bank after the central bank refused to extend Kapoor's term owing to some corporate governance issues that cropped up during his term. In Q4FY19, the bank reported a loss of Rs 1,506 crore which it attributed to rising provisions and contingencies.
NPAs of over Rs 3,480 crore were recognised by the bank from the real estate, aviation and infrastructure sectors. The bank's exposure to Reliance ADAG and Essel Group is also seen as a concern by investors and analysts.
"This (Gandhi's appointment) is an extraordinary move by RBI because this is a large frontline bank, unlike those which received a similar RBI diktat previously. This has to be read in conjuncture with other recent moves like a cut in the credit rating by agencies and is not a good sign of the bank’s health. We are cutting the bank’s rating to 'hold' from 'buy'," the report stated quoting Lalitabh Srivastawa, AVP, Research at Sharekhan.
