The Reserve Bank of India (RBI) on Thursday superseded the board of troubled private sector lender YES Bank and imposed a 30-day moratorium on it “in the absence of a credible revival plan” amid a “serious deterioration” in its financial health.
Former State Bank of India chief financial officer Prashant Kumar has been appointed administrator of YES Bank, and each depositor will be able to withdraw only up to Rs 50,000 in total till the moratorium is in place, the RBI said in two official statements issued on Thursday evening. However, in exceptional circumstances such as a medical emergency or marriage, depositors can withdraw up to Rs 5 lakh or the amount lying in account, whichever is less.
This is the first time that a bank of this size will be put under a moratorium by the RBI. During the moratorium, which came into effect from 6 pm on Thursday, YES Bank will not be allowed to grant or renew any loans, and “incur any liability”, except for payment towards employees’ salaries, rent, taxes and legal expenses, among others.
The central bank said the decision was taken in the public interest and in the interests of the bank’s depositors, and that it was left with “no alternative”.
“It (the RBI) 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 RBI said in a statement.
The RBI said the financial position of YES Bank had 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”. Assuring depositors that their interests would be fully protected, RBI emphasised that it would draw up a scheme in a few days for YES Bank’s “reconstruction or amalgamation” after seeking approval from the government before the moratorium period of 30 days ends. “There is no need to panic,” the RBI added.
Earlier in the day, Bloomberg reported that the government had approved a plan in which an SBI-led consortium would buy a stake in the bank. While YES Bank declined receiving any such information, SBI told the stock exchanges that it would abide by all the timelines of the market regulator in disclosing all “material information”.
RBI said it had been in constant engagement with the bank’s management and potential investors to find ways to strengthen its balance sheet and improve liquidity. YES Bank had even informed the central bank about talks with various investors “and they were likely to be successful”. It acknowledged the information made public by YES Bank about holding talks with private equity firms for capital infusion.
“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,” RBI said, adding that the bank was facing regular outflow of liquidity. The central bank also said YES Bank had experienced “serious governance issues and practices in recent years which have led to steady decline of the bank".