Letter to BS: RBI move to cap YES Bank withdrawal limit a bad decision

While roping in the State Bank of India (SBI) was a laudable and timely move to help the fund-starved bank, putting a restriction on withdrawal has done enormous harm to the economy, market sentiments and lastly, Yes Bank itself.

One thing which can't be denied is the investor confidence in Yes Bank —reflected from the huge deposits the bank has and the 67 per cent equity that it put in the hands of retail investors. It is here that the restriction on withdrawal will hit the bank badly. Account holders have become wary and belated assurances that their money is safe will not make them continue. I believe the bank will lose 75 per cent of deposits the moment restriction is withdrawn. Not to forget it has harmed private banks badly. Agreed Yes Bank was financially in bad health but still in better health than Allahabad Bank, or say, UCO Bank. Why are such restrictions not enforced there?

Why is the restriction on withdrawal bad? Take the case of a current account holder. He deposits remittances on day-to-day bases and withdraws when payments are to be made. It is stupid to think that he could allow remittances to be put in an account for a month and then wait for the benevolence of the Reserve Bank of India (RBI) governor to withdraw on April 4. I think that the RBI should allow withdrawals of the amount which goes to the account after 6 PM on March 5 and other withdrawals should be relaxed within a week.

How market sentiments have been hit can be gauged from the fact that the moment the news regarding SBI’s participation was known , the share price of YES Bank appreciated by 28 per cent to touch Rs 38 and when the restriction on withdrawals was known, it depreciated by 400 per cent to touch Rs 5.

What we need? Instead of big economists or bureaucrats, we need small businessmen in the decision-making panel. We don’t need the likes of Ratan Tata or Mukesh Ambani. Those who run small enterprises and have risen from scratch must be consulted to prevent such mistakes.

Bhartendu Sood via email

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