Yes Bank under moratorium; RBI imposes lending curbs
06 March 2020
The Reserve Bank has, in consultation with central government, superseded the board of directors of Yes Bank Ltd for a period of 30 days owing to, what it said, serious deterioration in the financial position of the bank. Prashant Kumar, ex-DMD and CFO of State Bank of India, has been appointed as the administrator.
RBI also imposed restrictions on the bank’s lending activity by limiting the amount depositors can withdraw from their accounts to Rs50,000 in a bid to restore financial stability at the private lender.
RBI said the measure is intended to quickly restore depositors’ confidence in the bank, including by putting in place a scheme for reconstruction or amalgamation.
RBI said the financial position of Yes Bank Ltd 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 the recent years which have led to steady decline of the bank.
RBI said it has been in constant engagement with the bank’s management to find ways to strengthen its balance sheet and liquidity. The bank management has been in talks with various investors and they were likely to be successful. It was also engaged with a few private equity firms for exploring opportunities to infuse capital as per the filing in stock exchange dated 12 February 2020. These investors also held 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 said it made all efforts to facilitate such a process and gave 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.
After taking into consideration these developments, the Reserve Bank came to the conclusion 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 moratorium effective from Thursday (5 March 2020).
RBI has assured depositors of the bank that their interest will be fully protected and there is no need to panic and that it 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 30 days ends so that the depositors are not put to hardship for a long period of time.
In the meantime RBI said the bank will not be allowed to pay depositors a sum exceeding Rs50,000 in any savings, current or any other deposit account. Any withdrawal over the amount will require the permission of the Reserve Bank of India.
The moratorium will be applicable from 6:00 pm on 5 March to 3 April 2020.
The restrictions on the withdrawal of deposits will be subject to certain conditions. RBI may, by a general or special order, permit the bank to allow withdrawal of over Rs50,000 in the following unforeseen circumstances:
- in connection with the medical treatment of the depositor or any person actually dependent on him;
- towards the cost of higher education of the depositor or any person actually dependent on him for education in India or outside India;
- to pay obligatory expenses in connection with marriage or other ceremonies of the depositor or his children or of any other person actually dependent upon him; and
- in connection with any other unavoidable emergency.