The Reserve Bank of India (RBI) on Thursday imposed a moratorium on private sector lender Yes Bank and capped withdrawals at Rs 50,000 till April 3.
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 the recent years which have led to steady decline of the bank, RBI said in a statement.
The Reserve Bank has been in constant engagement with the bank’s management to find ways to strengthen its balance sheet and liquidity. 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, the statement said.
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, it said.
Accordingly, the Central Government has imposed moratorium effective from Thursday.
However, the banking regulator assured depositors of Yes Bank that their interest will be fully protected and there is no need to panic. “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,” it said.
The RBI has superseded the board of directors of Yes Bank for a period of 30 days “owing to serious deterioration in the financial position” of the bank.
“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under 36ACA of the Banking Regulation Act 1949, the Reserve Bank has, in consultation with Central Government, superseded the Board of Directors of Yes Bank Ltd.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. Prashant Kumar, ex-DMD and CFO of State Bank of India has been appointed as the administrator under Section 36ACA (2) of the Act,” it added.