Money & Banking

YES Bank board superseded; RBI says reconstruction plan in next few days

Our Bureau Mumbai | Updated on March 06, 2020

YES Bank has been looking for investors to shore up its capital base

Withdrawals capped at ₹50,000/depositor; the bank may be merged with SBI

The Centre and the Reserve Bank of India swung into action on Thursday superseding the board of the troubled YES Bank. An order of moratorium was issued, whereby withdrawals have been capped at ₹50,000 per depositor. The RBI has appointed Prashant Kumar, a former Deputy Managing Director and CFO of SBI, as the Administrator.

There is a possibility that the bank will be merged with State Bank of India as the next step. The Reserve Bank has assured depositors of YES Bank that their interest will be fully protected and there is no need to panic.

The RBI will explore and draw up a scheme in the next few days for the bank’s reconstruction or amalgamation with the approval of the Central government. This will be done before the 30-day moratorium period ends so that the depositors are not put to hardship for a longer period.

“In exercise of the powers conferred under Section 36ACA of the Banking Regulation Act, 1949, the Reserve Bank has, in consultation with Central government, superseded the board of directors of YES Bank for 30 days owing to serious deterioration in the financial position of the bank,” the RBI said in a statement.

It added that this has been done to quickly restore depositors’ confidence in the bank, including by putting in place a scheme for reconstruction or amalgamation.

Under RBI lens

The RBI observed that the financial position of YES Bank has been declining largely due to the 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.

It also underscored that the bank has had serious governance issues and practices in recent years which have led to its steady decline.

The RBI said it has been in constant engagement with the bank’s management to find ways to strengthen its balance-sheet and liquidity position.

The private sector lender has been working to raise capital and had said last month that it has received non-binding expressions of interest from several prominent investors as part of its capital-raising plans. The lender had also delayed its third quarter results and had proposed to announce it before March 14.

“.…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 Centre has imposed a moratorium effective from today,” the RBI said.

Published on March 05, 2020

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