Yes Bank Crisis: In a rare move, the capital-starved Yes Bank was placed under a moratorium by RBI on Thursday, with the central bank capping deposit withdrawals at Rs 50,000 per account for a month and superseding its board. The withdrawal restrictions, which came into effect as of 6 pm on March 5, will remain in place until April 3, 2020.
In this article, we try to explain how banking services will be impacted if you are a Yes Bank customer or planning to do business with it.
Yes Bank moratorium: How it affects
After RBI's restrictions, Yes Bank will not be able to grant or renew any loan or advance, make any investment, incur any liability or agree to disburse any payment.
RBI has also superseded the institution’s board of directors for a period of 30 days and has appointed Prashant Kumar, former CFO of State Bank of India as its administrator.
The regulatory actions, undertaken by the RBI and the government, came hours after finance ministry sources confirmed that SBI was directed to bail out the troubled lender.
For the next month, Yes Bank will be led by the RBI-appointed administrator Prashant Kumar, an ex-chief financial officer of SBI.
In its assessment of the situation at Yes Bank, the central bank has been blunt. “The financial position of the bank has undergone a steady decline largely due to the inability to raise capital to address potential loan losses…The bank has also experienced serious governance issues and practices in recent years which have led to a steady decline of the bank,” it said in a statement.
What RBI restrictions on Yes Bank mean for depositors?
According to the latest notification, Yes Bank cannot make in aggregate, a payment to a depositor of an amount exceeding Rs 50,000 lying to his credit, in any savings, current FDs, or any other deposit account till April 3.
So in that case, if you are an account holder at private lender Yes Bank, you can’t withdraw more than Rs 50,000 for the next month, even if you want to.
However, RBI has also said it may allow greater withdrawals, but only in certain circumstances like expenses for medical treatments, weddings and education.
Will Yes Bank depositors' money be protected?
India's Chief Economic Advisor has assured that RBI will protect depositors interest. "Government and RBI will protect Yes Bank depositors money," Arvind Subramanian has said.
So far, there is no hint that Yes Bank 'cannot' pay back its depositors. While RBI has assured that depositors' interests will be fully protected and that there is no need to panic. In fact, the central bank has also added that it has superseded the board in order to restore the confidence of depositors in the bank.
However, what the RBI has not said is that the withdrawal restrictions imposed are to ensure that there is no run on the bank. Well, with these restrictions, now RBI now has a little time to sort things out in quickly.
At present, the country's financial sector is already reeling under a spate of setbacks, starting with the high quantum of dud assets at over Rs 10 lakh crore, their slow-paced resolutions despite legal teeth through bankruptcy laws, scandals at non-bank lenders like IL&FS and DHFL, and also fraud at cooperative lender PMC Bank.
The last lender to be placed under a similar action was PMC Bank in September last year. While the withdrawal limits have been increased over time to Rs 1 lakh now, many PMC Bank depositors are still in the lurch.
There is no provision to handle insolvencies of commercial banks, and the raft of actions come even as the government is working on the FRDI (financial resolution and deposit insurance) Bill.
Just like PMC and DHFL, the RBI superseded the board of Yes Bank for a period of 30 days "owing to a serious deterioration in the financial position of the bank".
The government took the decision of placing the bank under a moratorium on an application made by the RBI, a gazette notification signed by Amit Agarwal, joint secretary in the finance ministry, said.