After refusing to extend Axis Bank MD and CEO Shikha Sharma’s term earlier, the Reserve Bank of India denied a full-term to Yes Bank chief Rana Kapoor, allowing him an extension of only four months till January 2019. Kapoor’s exit is the latest indicator of a sector-wide top level churn in the private banking space.

Banking sector insiders attributed the RBI’s decision to two factors–the divergence in reported NPAs between Yes Bank and RBI’s review (In FY17 the bank’s divergence stood at ₹6,355 crore), and the lack of a proper succession plan which separates the ownership from the management.

However, experts believe that these steps being taken by the RBI will not have the desired impact unless the reasons behind the move are made public.

J.N. Gupta, MD of Stakeholder Empowerment Services and former executive director, SEBI said, “It would be better if the RBI gives out the reasons for taking such decisions,” adding that although in some cases the RBI may not wish to reveal some details in the larger public interest to avoid creating a sort of panic situation.

“But then they should promise that they will come out with the reason a few years down the line, so that the lessons can be used in the future…The industry has to be told what was wrong, so as to not repeat past mistakes,” he said.

InGovern’s Shiram Subramanian echoed Gupta’s views. “I think the RBI needs to articulate the principles on which it is taking these decisions so that it is clear to all banks. That would take away the aspect of subjectivity from such decisions,” he said.

Subramanian also thinks that the RBI’s move was most likely aimed at sending a strong message to the banks. “I think RBI wants to send a strong message to banks that they should not take the regulatory asks lightly,” he said, adding that the RBI may want Kapoor to just be a shareholder and not take on the role of a non-executive chairman or board member.

Sanjiv Bhasin, executive VP, markets and corporate affairs at IIFL also agreed that Kapoor staying on in a non-executive role might result in further conflict of interest. “There will be another chairman who may be viewed as a puppet. There have to be adequate checks and balances for that as well. He [Kapoor] cannot be chairman emeritus or on the board. They will have to define his role. Otherwise it will be like he is running the show from behind,” he said.

Commenting on what lies ahead for the top management in Yes Bank, experts agree that whether the successor is an insider or not, he will have to be an able leader with a proven track record to instilling confidence in investors.

“There are able leaders within the bank and outside as well; either way it has to be a person of proven ability. The moral of the story is in the future even private banks should have a clear succession plan,” Bhasin said.

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