The growing list of Indian financial sector firms facing troubles saw the entry of Yes Bank today, after the Indian government okayed the Reserve Bank’s proposal to place Yes Bank under moratorium from 18:00 hrs on March 5, 2020 up to and inclusive of April 3, 2020. This in effect means Yes Bank cannot, without the permission in writing of the RBI, make aggregate payment to a depositor over Rs 50,000 even if there is more money lying to his/her credit, in any savings, current or any other deposit account etc.

Irrespective of the number of accounts you hold or the amount of total money you have, each Yes Bank depositor can now withdraw Rs 50,000. Even if a depositor maintains more than one account in the same capacity and in the same right, the total amount payable from all the accounts together shall not exceed the limit of Rs 50,000.

However, this limit shall not affect making of payment of amounts towards any drafts or pay orders issued by the said banking company and remaining unpaid on the date on which the order of moratorium comes into force, or in paying the proceeds of the bills received for collection on or before the 5th March, 2020.

The Government has said the Reserve Bank may by a general or special order, permit Yes Bank to allow payment to its depositors an amount in excess of Rs 50,000 to meet unforeseen expenses in connection with the medical treatment of the depositor or any person actually dependent on him, towards the cost of higher education of the depositor or any person actually dependent on him for education in India or outside India, to pay obligatory expenses in connection with marriage or other ceremonies of the depositor or his children or of any other person actually dependent upon him and in connection with any other unavoidable emergency. These payments shall not exceed the sum of Rs. 5,00,000 or the actual balance lying to the credit of the account of such depositor, whichever is less.

The Reserve Bank has, in consultation with Central Government, also superseded the Board of Directors of Yes Bank Ltd.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. Prashant Kumar, ex-DMD and CFO of State Bank of India has been appointed as the administrator under Section 36ACA (2) of the Act.

The RBI in a statement said 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. 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 RBI said.

Yes Bank turned wobbly due to surging bad loans and management uncertainty when the RBI declined to extend the term of founder Rana Kapoor as the Chief Executive in 2018. Under the new CEO Ravneet Gill the bank managed to raise some funds through share sale to institutional investors, but that was not enough.

“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 Central Government has imposed moratorium effective from today,” the RBI said.

The Reserve Bank tried to assure the depositors of the bank that their interest will be fully protected and there is no need to panic. In terms of the provisions of the Banking Regulation Act, 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, the RBI statement said.

Some frequently asked questions on Yes Bank developments:

Q: What if I have more than Rs 50,000 in Yes Bank account? Can I withdraw all?

A: No. You can withdraw a maximum of Rs 50,000 till April 3, 2020.

Q: I have EMIs and SIPs to be debited from my Yes Bank account. What happens?

A: Upto Rs 50,000 in total EMI and SIP payments will go through during the moratorium period if money is in your account balance. Once it reaches Rs 50,000, you will have to approach the bank to release more funds from your account.

Q: I have emergency funds in Yes Bank account. What if emergency strikes during this time?

A: You can try to to write to Yes Bank with documents in support of your emergency situation.

Q: What will happen to Yes Bank stocks and Yes Bank bonds?

A: The financial markets will respond to these developments. If there are more sellers than buyers for an asset, the price usually goes down. If there is more buyers than sellers, the price usually goes up.

Q: Can I use ATMs of Yes Bank or other banks to withdraw cash?

A: Yes, you can if ATMs have cash. But the Rs 50,000 limit will still apply.

Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. Kumar is a financial journalist, with a functional experience of 15 years. He tracks mutual funds, insurance, pension, PMS, fixed income/debt and alternative investments markets closely. He has worked for The Times of India, The Hindu Business Line, Deccan Chronicle Group, DNA, and Value Research, among others, across different cities in India. He is deeply interested in marrying data insights with actionable opinion. He can be contacted at [email protected].

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