Rs 50,000 withdrawal cap for Yes Bank depositors for 30 days; RBI says no need to panic, plan is being worked out

Mumbai: Reserve Bank of India today imposed moratorium on capital-starved Yes Bank and capped withdrawals at Rs 50,000 per account till further orders. The Board of Yes Bank has also been superseded. Former SBI CFO Prashant Kumar has been appointed administrator for Yes Bank. Yes Bank has been grappling with mounting bad loans.

In a statement issued soon after the finance ministry order, the RBI issued a statement to “assure depositors of the bank that their interest will be fully protected and there is no need to panic”.

The central bank said it will explore and draw up a scheme in the next few days for the bank’s reconstruction or amalgamation. The plan will be finalised well before the 30-day moratorium period ends “so that the depositors are not put to hardship for a long period of time”.

Yes Bank depositors can only withdraw Rs 50,000 from their accounts starting today till April 3. This Rs 50,000 cap is an aggregate amount across all bank accounts at Yes Bank – savings, deposits or current accounts.

Reserve Bank in its note said: The financial position of Yes Bank Ltd. (the 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 the recent years which have led to steady decline of the bank. The Reserve Bank has been in constant engagement with the bank’s management to find ways to strengthen its balance sheet and liquidity. The bank 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 in stock exchange dated 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 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 today.

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 Reserve Bank has also issued certain directions to the bank under section 35A of the Act ibid.

In exercise of the powers conferred under 36ACA of the Banking Regulation Act 1949, 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 serious deterioration in the financial position of the Bank. This has been done to quickly restore depositors’ confidence in the bank, including by putting in place a scheme for reconstruction or amalgamation. Shri Prashant Kumar, ex-DMD and CFO of State Bank of India has been appointed as the administrator under Section 36ACA (2) of the Act.

Exceptions

Exceptions will be made in a few cases and ‘competent authority’ will decide on these exceptions. The amounts in these cases cannot be more than Rs 5 lakh or the amount of money that is in the accounts (whichever is less).

Grounds of exception that will be considered are:

-Medical treatment for account holder or dependants

-Higher education costs for account holder or dependants in India or abroad

-Marriage expenses

-‘Unavoidable emergencies’

RBI has said that interest will be paid on deposits at the bank.