News Analysis

What should YES Bank customers and investors do now?

Rajalakshmi Nirmal BL Research Bureau | Updated on March 06, 2020 Published on March 06, 2020

Yes Bank’s customers line-up outside the Bank’s ATMin Mumbai.   -  Paul Noronha

Customers should quickly rope in alternative accounts; for investors, wait-and-watch may work best

The RBI on Thursday capped deposit withdrawals at ₹50,000 per account for a month (till April 3) for customers of YES Bank.

The private bank’s customers thronged ATMs last night to withdraw money. But they were mostly disappointed since many of the ATMs ran out of cash quickly and some others were non-operational. There were reports that net banking accounts have been blocked to prevent customers from transferring funds online.


However, it is suggested that deposit holders and other customers of the bank do not panic. The RBI has ensured that their interests are protected.

Here are some dos and don’ts for customers and depositors.

Bank customers: Act quick

If you are among the many lakh customers of YES Bank, avoid any fresh credits into the account. You should immediately give an alternative account for credit of funds to mutual funds/insurance companies for dividends and credit from redemption requests you have placed.

Radhika Gupta, CEO of Edelweiss AMC, has tweeted that from Friday, the fund house will make sure that redemption payouts are not made to YES Bank accounts. Nithin Kamath, founder & CEO of Zerodha, an online stocking broking company, tweeted early Friday morning that the company has cancelled all fund withdrawal requests made by clients to their YES bank accounts so that the money doesn’t get blocked.

While other financial services players are likely to follow suit, do not bank on them to take the necessary precautions. Check your previous months’ receipts and give alternative accounts to every institution that has been crediting its payments to your YES Bank account. Also, make sure the amounts due to you — including salary, rent and payments from customers — do not go into your account with YES Bank.

For now, it is not known by when the withdrawal limit will be removed. Last September, PMC Bank faced a similar action from RBI; the limit on withdrawal was raised subsequently, but not fully removed.

The RBI’s Thursday circular stated that exemptions from the ₹50,000 withdrawal limit will be given in special cases including medical treatment of the depositor or any person dependent on him/her; expenses on higher education of the depositor or dependant; obligatory expenses in connection with marriage or other ceremonies of the depositor or dependant.

Investors in bond papers

If you are an investor in a debt mutual fund that has invested in a YES Bank paper, do not panic and rush to redeem your fund. By doing this you will lose out, as the NAVs of some funds that have invested in YES Bank’s bonds may go down by the end of the day (Friday), as reports are floating that some MFs are marking down the value of these bonds.

Nippon Mutual Fund has issued a circular saying it has marked down the value of YES Bank to zero in its debt scheme.


Note that YES Bank’s papers have not been downgraded yet by rating agencies, so wait and watch and take a call after fund houses side-pocket it.

SEBI rules require mutual funds to write down the value of bonds in their portfolios based on their credit ratings. When MFs write down such bonds, it immediately hits the NAV and investors who sell the fund units at that time take a blow. But if the issuer of the bond later pays up the dues, the fund will then increase its NAV to account for the repayment and investors who hurriedly sold the fund lose out on the benefit.

On the other hand, new investors who bought the fund units when the NAV dropped will benefit later, if the NAV correction happens. It is to avoid this unfairness that SEBI recently brought in a rule saying downgraded bonds (those that are rated below investment grade by rating agencies) in a fund’s portfolio have to be side-pocketed. This helps segregate the ‘doubtful’ bonds and benefit the investors in those bonds when money is recovered.

So, for now, wait. The fate of YES Bank’s bonds is not known yet. However, note that SEBI has not made side-pocketing compulsory. So, watch out for e-mails or SMS notifications from your mutual fund house.

Published on March 06, 2020

A letter from the Editor

Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.