The Reserve Bank of India is unlikely to agree to an extension to the term of YES Bank Managing Director and CEO Rana Kapoor, which has added further uncertainty to the lender’s leadership transition plan.

The proposal was mooted by the private sector lender’s board of directors on Tuesday, who sought extension for Kapoor until April 30, 2019, to help finalise the audited financial statements for 2018-19, and then up to September 30, 2019, for the statutory annual general meeting process to be completed.

The RBI has asked Kapoor to step down after January 31, 2019, after cutting short a proposal for a three-year term for him.

“When the RBI has cut short the term of Kapoor, it is unlikely to agree to an extension for him for whatever reason,” said a person familiar with the development.

External candidate

Further, with indications that an external candidate is likely to be appointed to succeed Kapoor, there is uncertainty on whether there is sufficient time for the selection process as well as familiarisation with the bank’s functioning.

The issue is understood to have also been raised at the meeting of the board of directors, on Tuesday, by some members.

Equally, the proposal to elevate Senior Group Presidents at YES Bank – Rajat Monga and Pralay Mondal – as Executive Directors, is also being seen with a lot of uncertainty as to whether the RBI, which has frowned upon divergences in bad-loan reporting by the lender in the past, will approve the move.

More importantly, there are also concerns on the possible stance of the other promoter groups led by YES Bank co-founder Ashok Kapur’s wife Madhu Kapur. An external candidate may be viewed favourably by Madhu, but it is unclear what her position will be regarding the elevation of Monga and Mondal to the board.

Though the YES Bank stock partially recovered on Wednesday after the board meeting, most analysts have also raised similar questions.

In a research note, Macquarie said the extension for Kapoor may not be approved by the RBI, which may not also clear the elevation of internal candidates to the board as they may be seen to be equally responsible for bank operations.

“An external CEO, while ideally is likely to ‘clean up’ the image of the bank on the three alleged issues, would find it hard to adjust with a team which could potentially be influenced by the presence of its current MD & CEO. However, the chances of the RBI and the other Indian promoter group (Madhu Kapur) approving a credible external candidate with a good career track record appear to be higher,” said ICICI Securities in a note.

Prabhudas Lilladher said the outcome of the board meeting has left several loose ends and prolongs uncertainty regarding the succession. “The board has not been able to give a clear picture on the succession and further course for the bank. The timelines and uncertainty on approvals from the RBI for both MD & CEO (should be difficult) and EDs will keep the near-term stock performance muted,” it said.

The scrip of YES Bank gained 1.73 per cent and closed at ₹223.65 apiece on the BSE.

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