Private sector lender YES Bank's audit committee chairman Uttam Prakash Agarwal resigned as independent director on grounds of deteriorating corporate governance standards at the Mumbai-based bank. YES Bank’s shares closed 5.3% lower at ₹44.80 a piece on the S&P BSE Sensex on Friday.
“There are serious concerns as regards deteriorating standards of the corporate governance, failure of compliance, management practices and the manner in which the state of affairs of the company are being conducted by Ravneet Gill, MD & CEO, Rajeev Uberoi, senior group president governance & controls, Sanjay Nambiar, legal head and board of directors," Agarwal alleged in a letter sent to the board on Friday.
The bank on its part said it was in the process of reviewing the 'fit and proper' status of Agarwal – as directed by the central bank – after a whistleblower alleged he had failed to disclose details of criminal cases filed against him. However, in a notification to exchanges, the bank said Agarwal resigned before the review was completed.
Allegations of governance failures at YES Bank are not new, but the timing is critical as the bank is desperately looking to raise funds to boost its capital base to comply with RBI norms. With no clarity on the bank's fundraising plans, investors are losing patience.
The market was hopeful the bank would turn the corner under Ravneet Gill's leadership. However, there has been no respite for the controversy-hit lender as it continues to battle one crisis after another. The slew of shocks has rattled the confidence of investors.
Chief executive Ravneet Gill's attempts to clean up YES bank's loan books remain an uphill battle and a slow work in progress. The RBI's risk assessment report found the private sector lender under-reported bad loans for fiscal year 2019 by ₹3,277 crore: A steep divergence of 41% that suggests there is little clarity on the bank's actual progress in breaking free of its legacy of worrisome asset quality issues.
In FY19, YES Bank had informed investors its gross non-performing assets stood at ₹7,882 crore, but an independent audit by the central bank pegged the gross non- performing assets 41% higher at ₹11,159 crore. RBI's report also noted the bank's net non performing assets stood at ₹6,784 crore versus ₹4,485 crore as reported by the bank: Indicating the bank under-stated it's net non-performing loans by 51% or ₹2,299. RBI also found provisions to be higher by ₹978 crore at ₹4,376 crore.
In December, global ratings agency Moody's downgraded the bank's credit ratings. Moody's was also negative on its outlook for the company mainly due to the bank's high level of stressed assets and weak capital base to cushion the impact of further deterioration in asset quality.
"The downgrade of YES Bank's deposit and senior unsecured program ratings to B2 from Ba3 and (P)B2 from (P)Ba3 takes into account Moody's expectation that the bank's pool of potential stressed assets and low loss absorbing buffers against those assets — will add pressure to its funding and liquidity, creating additional risks to its standalone credit profile or BCA," Moody's said in a statement.
Moody's said it expects YES Bank's common equity tier 1 (CET1) ratio of 8.7% at the end of September 2019 to come under significant pressure, unless the bank can raise new capital in the next few quarters. "The rating actions reflect Moody's view that Yes Bank's funding and liquidity compares weakly to other rated private sector peers in India, and could come under pressure, if the bank cannot strengthen its solvency in the next few quarters," it added.
The next few weeks will be crucial for YES Bank as investors will closely watch the management's actions that can potentially restore or mar investors' faith in the bank's future. The market, of course, will keep a hawk's eye on the successful closure of the bank's long standing plan to raise funds to keep the bank afloat.