Yes Bank faces RBI action for breach of confidentiality

MUMBAI: Two days after Yes Bank said that it had been given a clean chit by the RBI, the central bank hauled up the lender for disclosing an information that was confidential in nature. Yes Bank had twice suppressed the extent of bad loans in its books in previous years.
The RBI has now warned Yes Bank of regulatory action for disclosing the ‘nil (NPA) divergence report’, which was a violation of the confidentiality clause, the private bank told the bourses on Friday night.In banking parlance, divergence refers to the difference between what the bank quotes in its annual report and what RBI’s inspection report of the same bank’s books shows.

On Wednesday, Yes Bank had issued a release saying the RBI did not find any divergence in the lender’s asset classification and provisioning for fiscal 2018. Following the disclosure, analysts upgraded the target price for Yes Bank stock and, in Thursday’s market, it rallied 31% — the highest single-day gain in over 14 years. On Friday, the stock lost 1% to close at Rs 219 on the BSE.
For fiscal 2017, the bank had reported a Rs 6,355-crore divergence, while for fiscal 2016, the corresponding figure was Rs 4,177 crore. Although the RBI did not disclose, it is discussed in banking circles that the repeated divergence in Yes Bank’s books was the main reason behind the central bank’s denial to Rana Kapoor to continue as the bank’s MD.
In its communication to the exchanges, Yes Bank said it had received a letter from the RBI that noted that the central bank’s Risk Assessment Report (RAR) was marked ‘confidential’ and it was expected that no part of the report would be divulged except for the information in the form and manner of disclosure prescribed by regulations.
“Therefore, (Yes Bank’s) press release breaches confidentiality and violates regulatory guidelines. Moreover, NIL divergence is not an achievement to be published and is only compliance with the extant Income Recognition and Asset Classification norms,” the RBI said in its letter. “The issuance of the press release has, therefore, been viewed seriously by the RBI and could entail further regulatory actions,” the letter said.
In addition to the central bank’s observations on bad loans, an RAR also identifies several other lapses and regulatory breaches in various areas of a bank’s functioning. So the disclosure of just one part of the RAR was viewed by the RBI as a deliberate attempt to mislead the public, the central bank said. The RBI conducted its first asset quality review (AQR) of banks in 2015 to find corporate loan accounts with severe financial weakness which were still classified as standard accounts on the books of the lenders.