RBI supersedes board of Yes Bank, caps withdrawals at Rs 50,000

Ghughuti Bulletin

https://economictimes.indiatimes.com/industry/banking/finance/banking/govt-limits-withdrawals-from-yes-bank-at-rs-50000/articleshow/74498382.cms

MUMBAI: The Reserve Bank of India superseded the Board of Directors of
Yes Bank and imposed a moratorium for a month as its financials deteriorated, but has promised to come up with a credible restructuring plan in the next few days that may involve merging it with another lender.

The regulatory action follows extended period of inability of the bank management to come up with fund raising that would have helped it provide against loan losses. Prashant Kumar, former deputy managing director at State Bank of India, would be the administrator.

Depositors can pull out a maximum of Rs. 50,000 per head even if an individual has more number of accounts, a government gazette notification said. The outstanding amounts on drafts and pay orders issued so far would be paid in full, it said.

The central bank could breach the cap of withdrawal for exceptional events in a depositor’s life such as a medical emergency, payment for higher education or for marriages. This shall not exceed Rs. 5 lakh.

“In the absence of a credible revival plan, and in public interest and the interest of the bank’s depositors, it (the RBI) had no alternative but to apply to the Central Government for imposing a moratorium,’’ RBI said in a statement. “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 moratorium is a shock to the financial system because there has been no big bank that was placed in such a situation since July 2004 when the regulator resorted to a shotgun marriage of Global Trust Bank with the state-run Oriental Bank of Commerce. Recently, the Punjab and Maharashtra Co-operative Bank also faced a similar fate. The central bank also blamed the governance standards at Yes Bank over the past few years.

“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,’’ said the RBI. “The bank has also experienced serious governance issues and practices in the recent years which have led to steady decline of the bank.’’

The central bank moratorium on Yes Bank would however permit it to repay loans or advances granted against Government securities or other securities, to the bank by the RBI or by any other bank and remaining unpaid as of Thursday. It would also be allowed to operate its account with the RBI.

Yes Bank which has seen its fortunes slide over the past 18 months has been in talks with many equity investors over the past year, but failed to come up with a concrete investment plan.

“The bank management had indicated to the Reserve Bank that it was in talks with various investors and they were likely to be successful,’’ said the RBI statement. “The bank was also engaged with a few private equity firms for exploring opportunities to infuse capital. These investors did hold discussions with senior officials of the Reserve Bank but for various reasons eventually did not infuse any capital.’’

Last month Yes Bank had informed exchanges that the about half-a-dozen investors, including JC Flowers & Co, Tilden Park Capital Management, OHA (UK) (part of Oak Hill Advisors) and Silver Point Capital, have sent in ‘non-binding’ expressions of interest. Yes Bank has postponed its December quarter results citing fund raising talks and is set to announce earnings by March 14.

Yes Bank turned wobbly due to surging bad loans and management uncertainty when the Reserve Bank of India declined to extend the term of founder Rana Kapoor as the Chief Executive in 2018. Under the new CEO Ravneet Gill the bank managed to raise one round of funds through share sale to institutional investors, but that was not enough.

The central bank defended its delay in this act saying its preferred option is a market related solution.

“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,’’ the RBI said. “In the meantime, the bank was facing regular outflow of liquidity.’’

Here’s the full notification

Yes Bank Ltd. placed under Moratorium

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 considering 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

Leave a Reply

Your email address will not be published. Required fields are marked *

Next Post

1 More Coronavirus Case, Total 30, Delhi Shuts Primary Schools: 10 Points

https://www.ndtv.com/india-news/1-more-coronavirus-case-total-30-delhi-shuts-primary-schools-10-points-2190586