Why Yes Bank audit committee chief quit

Uttam Prakash Agarwal alleged that both Citax and Braich offers were incomplete and did not include firm commitment as to the price, size, timings, confirmation from the banks about availability of the funds.

Yes Bank’s independent director and chairman of its audit committee, Uttam Prakash Agarwal, resigned on Friday, alleging that managing director and chief executive officer Ravneet Gill had misled the board of directors about the binding offers to raise capital.

The bank’s board said in a notification that it had received the resignation of Agarwal, and that certain observations made by him on the bank’s governance would be “duly examined by the board”.

However, the notification on board meeting did not mention if the allegations were discussed.

A Yes Bank official did not want to add anything beyond the exchange notifications.

The bank also said it was investigating whether Agarwal met the fit and proper criteria as a director after being cautioned by the Reserve Bank of India (RBI), but before the issue could be taken up by the board on Friday, he resigned.

Agarwal alleged that Citax had a share capital of only £100, and that neither Citax nor Braich’s offers could be called binding commitments.

But the bank told the board, exchanges, and the media that it had received a binding offer of up to $1.2 billion for capitalisation of the bank.

Agarwal strongly denied any wrongdoing.

Rather, he said the RBI letter was a routine one and was received in April last year as part of annual check on the fit and proper criterion of all the directors.

“I had given them six legal opinions on the issue where the chief justice of Kerala and others gave me a clean chit.

"But they used that tool to pressurise me because I was a vocal member in the board against the malpractices.

"How much time does it take to ascertain the fit and proper criterion? I am a director since November 2018,” he said.

“These are not mere allegations, but hard facts.

"The capital raising issue is going on for four months.

"They didn’t even do due diligence on Citax.

"Did they find if the investor has enough money to invest in the bank?

"Let us first examine the fit and proper criterion of the management itself,” Agarwal said.

He alleged in his letter to the capital markets and banking regulators, as well as to the exchanges, that Yes Bank CEO Gill initially did not want to disclose to the board the names of the investors who gave binding offers.

"In the subsequent meetings, Gill communicated the names verbally, and it was also found that one of them, Citax, had a share capital of just £100.

“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 Mr Ravneet Gill - MD/CEO, Dr Rajeev Uberoi, senior group president governance and controls, Mr Sanjay Nambiar - legal head and board of directors,” Agarwal’s resignation letter said.

Agarwal, an independent director at the bank since 14 November, 2018, said he was appointed by the shareholders to serve for a period of five years starting June 12, 2019.

Agarwal alleged that on October 31, 2019, when the management held a meeting of the capital raising committee (CRC), Gill said the bank had received a commitment from a global investor to put $1.2 billion in the bank.

However, there was no meeting held by the board of directors for considering this proposal.

The bank subsequently informed the exchanges that it had received such an offer, without disclosing the name of the investor.

The NSE, according to Agarwal, issued several letters to the bank, seeking details of the investor mentioned on October 31, but the bank had not satisfactorily answered those queries.

In the board meeting on November 29, Gill verbally informed the board about the binding term sheet with certain investors.

“However, in spite of repeated requests by the undersigned and other board members, the management for reasons best known to them did not table or share any correspondence or paper or a copy of the binding term sheet,” his letter alleged.

While the board pressed the MD and CEO to share term sheets of all nine approved investors by the board and the CRC, Gill produced only two term sheets, one from Citax and second jointly from SGPG Holding (HK) and Erwin Singh Braich, “which by any stretch of imagination cannot be termed as binding offer/term sheet,” Agarwal alleged.

The media release issued by the bank was “shocking”, considering the fund raising plans mentioned there were at variance with what was discussed or approved by the CRC and the board on November 29 meeting, Agarwal said.

The Citax and Braich offers were “incomplete and did not include firm commitment as to the price, size, timings, confirmation from the banks about availability of the funds etc.”

“From this information, all the board members were aghast and firmly requested CEO/MD that unless and until a comprehensive and effective due diligence have been carried on each and every investor including Citax and ensure that the committed amount of investment is placed with a bank in escrow, no misleading information can be shared with any statutory/regulatory bodies/stock exchange to ensure that by no stretch of imagination, the bank is in violation of the regulations stated under subject,” the letter said.

The CEO and MD also produced three letters from different investors, but they were expressions of interest for investment in debentures and not in the equity of the bank.

However, Gill issued a media release on December 10 that the bank was evaluating potential investors to raise capital up to $2 billion.

Concerned about such misleading offers, an empowered committee at the bank held a meeting on January 7, where independent experts from IDFC Securities, Ambit Capital and Avendus Capital “reaffirmed the concerns raised by the undersigned”.

Emails sent to the three firms remained unanswered.

Photograph: Danish Siddiqui/Reuters