The Reserve Bank of India imposed a moratorium on the struggling Yes Bank on Thursday evening and capped withdrawals at Rs 50,000 for the next month. The board of Yes Bank has also been superseded with immediate effect for 30 days, the Reserve Bank of India (RBI) said in a statement. The moratorium came into effect at 6 pm on Thursday.
However, according to reports, depositors have been allowed to withdraw more than Rs 50,000 under conditions: for any medical treatment of the depositor or any of the depositor’s dependents, for the higher education of the depositor or anyone dependent on him/her for education in and outside India, to pay any obligatory expenses like for marriage ceremonies, or for any other unavoidable emergency.
Former SBI CFO Prashant Kumar has been appointed as administrator for Yes Bank. In line with the provisions of the Banking Regulation Act, the RBI will explore and draw up a scheme in the next few days for the bank's reconstruction or amalgamation and with the approval of the Central government, put the same in place well before the period of moratorium (30 days) ends so that the depositors are not put to hardship for a long period of time.
The latest development comes six months after the regulator did the same with the city-based cooperative lender PMC Bank after a large scam was unearthed.
Yes Bank has been grappling with mounting bad loans.
Bloomberg reported on Thursday that the government had approved a consortium, led by the State Bank of India, to pick up a stake in the beleaguered bank.
In a circular, the RBI stated that the financial position of Yes Bank has undergone a steady decline largely due to inability of the bank to raise capital to address potential loan losses and resultant downgrades, triggering invocation of bond covenants by investors, and withdrawal of deposits. The bank has also experienced serious governance issues and practices in recent years, which have led to a steady decline of the bank, the circular added.
The Reserve Bank stated that it has been in constant engagement with the bank’s management to find ways to strengthen its balance sheet and liquidity. The bank’s management had indicated to the Reserve Bank that it was in talks with various investors and they were likely to be successful. The bank was also engaged with a few private equity firms for exploring opportunities to infuse capital as per the filing with the stock exchanges on February 12, 2020. These investors did hold discussions with senior officials of the Reserve Bank but for various reasons eventually did not infuse any capital. “Since a bank and market-led revival is a preferred option over a regulatory restructuring, the Reserve Bank made all efforts to facilitate such a process and gave an adequate opportunity to the bank’s management to draw up a credible revival plan, which did not materialise. In the meantime, the bank was facing regular outflow of liquidity,” the RBI said.
The RBI added that in the absence of a credible revival plan, and in public interest and the interest of the bank’s depositors, it had no alternative but to apply to the Central Government for imposing a moratorium under section 45 of the Banking Regulation Act, 1949. Accordingly, the Central Government has imposed a moratorium effective from Thursday.
“The Reserve Bank assures the depositors of the bank that their interest will be fully protected and there is no need to panic. In terms of the provisions of the Banking Regulation Act, the Reserve Bank will explore and draw up a scheme in the next few days for the bank’s reconstruction or amalgamation and with the approval of the Central Government, put the same in place well before the period of moratorium of thirty days ends so that the depositors are not put to hardship for a long period of time,” the RBI added.
With inputs from agencies