Now that the Yes Bank saga seems to have entered the stage of the final hearing at the Bombay high court and it appears that its CEO and MD Rana Kapoor had written to the Reserve Bank of India (RBI) in 2012 requesting that Madhu Kapoor, widow of Ashok Kapur, be declassified as a promoter, some issues of wider public interest need to be discussed.

They also run parallel to the current debate on banking licences and tricky issues of the conflict of interest.

Yes Bank is in the throes of a huge legal battle between the two major shareholder/ promoters – Rana Kapoor and Madhu Kapur, wife of the late Ashok Kapur who was the other Indian promoter.

Governance Now has learnt that Yes Bank’s director and chairman MR Srinivasan may have once been involved in the process of the bank getting its licence.

Yes Bank got its banking licence in May 2004. Srinivasan was then chief general manager at the RBI’s department of banking operations and development (DBOD). Moreover, he was drawing Rs 1 lakh a month as advisor from Yes Bank when he became additional director in 2012 and was later made non-executive part-time chairman.

The RBI was told of this before they approved his appointment as non-executive chairman. 

Much has been said about the “fit and proper” norms for directors in banks, apparently taken from the detailed work of an RBI-appointed Consultative Group of Directors, headed by Dr AK Ganguly who was himself a director of the RBI. The document of April 2002 shows the name of Srinivasan as member-secretary.

It laid down detailed criteria for the selection of directors on bank boards to ensure proper checks and balances in the working of public sector and private sector banks. Having been appointed in the wake of the Ketan Parekh scandal with the Madhavpura Mercantile Cooperative Bank, the group has said a great deal about the independence of directors.

Governance Now has a copy of a letter dated September 27, 2002 from Wouter Kolff, then vice chairman of Rabobank Limited which was also an initial promoter of Yes Bank, to GP Muniappan, then deputy governor of the RBI.

It reads: “This is further to our meeting on Friday, September 6, when I was accompanied by our Indian partner Mr Rana Kapoor to your office in Mumbai, and met with you and with your colleagues Mr Khetarpal, executive director, and Mr Srinivasan, chief general manager.

“As discussed, Rabobank  International, in conjunction with its three Indian partners (Messrs Rana Kapoor, Ashok Kapoor and Harkirat Singh), is fully committed to implementing the joint venture bank over the next few months for which an in-principle licence was issued by you on February 7, 2002.”

Srinivasan’s response could not be elicited as Yes Bank’s corporate communications team insisted we ask questions only through them. They added that Srinivasan was a very experienced hand and a respected figure in banking circles.

After he left RBI in 2003, Srinivasan was also executive director and advisor to IDBI and was the IDBI nominee director on IDBI Bank Ltd. He became advisor to Yes bank in 2007. 

He was appointed additional director of Yes Bank on October 23, 2012 and his appointment as director and part-time chairman was approved at the AGM of June 8, 2013. By June, Madhu Kapur had challenged the nominations of Srinivasan, Diwan Arun Nanda and Ravish Chopra and the suit is pending at the Bombay high court.

The obvious questions are: Did the bank and Srinivasan maintain an arm’s length relationship for him to be ‘independent’ director? Did he benefit from the bank before he became a director and non-executive, part-time chairman?

Says Deepak Mukerjee, who worked with Grindlays Bank Plc for over three decades, later set up IDBI Bank with a team in 1995, and was its MD for five years: “I see there are issues of propriety involved here – certainly in a moral sense, if the facts you have quoted are correct (that the person was materially involved in giving licence to Yes Bank).

“But this is an appointment that had RBI’s express nod. Were they not in the best position to judge the nature of conflict that might be involved? They have such a good reputation and record.

“If you ask me, I think the moot question here is, did RBI know that the person concerned was on a paid retainership with Yes Bank? Would they have assented to his chairmanship if this fact was known to them?”

Apparently, RBI had approved it with the knowledge of this fact. However, a spokesperson from RBI said the central bank did not want to comment.