Rana Kapoor, other promoters stare at losing YES Bank control post equity dilution

For the first time since Rana Kapoor and his late brother in-law Ashok Kapur founded the new generation private bank - YES Bank - the equity stake of Rana Kapoor's family, which included his own stake and that of two affiliates - YES Capital and Morgan Credit - has gone below the threshold of 10 per cent, which guaranteed them directorship rights.

Kapoor and his affiliates held 9.64 per cent stake in the bank as on August this year. The Kapur family has also seen their holdings falling to 8.33 per cent during the same period.

The current reduction in their holding is the result of recent equity dilution of about 10 per cent to raise capital of Rs 1,950 crore. This capital is not enough for future growth as the bank is facing asset quality deterioration. There are already estimates of over Rs 10,000 crore capital required for growth as well as provisioning for non-performing assets. Given the rock bottom share price and weak stock market, the new private bank has no option but to go for equity dilution in a staggered manner over the next few years.

These equity dilutions would bring down the stake of two Indian partners in a big way.

According to bank's article of association (AoA), Indian partners enjoy the right to recommend three directors on the board, which are called Indian Partners Representative Directors. These rights are available only if they hold minimum 10 per cent stakes in the bank. In fact, the entire dispute between the two families had erupted because of one partner claiming that the other one had been exercising the right by claiming to be the only Indian partner. The dispute has settled now. In April this year, Indian partners Kapoor and Kapur family jointly recommended Shagun Gogia Kapur (late Kapur's daughter) and Ravinder Kumar Khanna as representative directors for Indian partners on the board.

Indian partner Rana Kapoor earlier held the post of MD&CEO, which he had to vacate after Reserve Bank of India's diktat.

Now that the stakes of both the partners have gone below 10 per cent, they cannot act on their own. They need the support of each other to claim the rights of three directors.

Besides, in the distant future, there could be a scenario where the combined stakes of both the partners fall below 10 per cent. This can be a reality as YES Bank needs massive amount of capital infusion.

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