Government Imposes Moratorium On YES Bank, Withdrawal Limit At ₹50K

The central government on Thursday placed YES Bank under a financial moratorium until April 3, and the Reserve Bank of India (RBI) has superseded the bank's board of directors, effective immediately, according to a statement released by it. Under the moratorium, depositors would only be able to access ₹50,000 worth of funds across all of their accounts with the bank. The RBI cited the bank's inability to raise fresh capital to address loan losses, resultant downgrades, the invocation of bonds and the withdrawal of funds by investors.

In elaborating its reasons for taking the step, the RBI goes on to state the bank's engagement with a few private equity firms according to exchange filings dated Februrary 12, which failed to infuse any capital in the bank. Further, the RBI also notes that a credible revival plan did not materialise, which led it to recommend to the central government to take the step. This move, under section 45 of the Banking Regulation Act 1949, is significant, with the last major instance of this being seen in the Punjab and Maharashtra Co-operative Bank (PMC Bank) case, only six months ago in September 2019. The full statement can be read here. Along with the mentioned prohibition on depositors, the bank would also not be able to make payments to creditors exceeding ₹50,000. However, unlike the PMC Bank moratorium, there are provisions for depositors to withdraw more than the limit for unforeseen expenses, medical emergencies, for higher education and marriages. The technicalities of the moratorium has been put out in an official gazette, and can be read here.

In this moratorium period, the RBI shall be working on the bank's reconstruction or amalgamation, which it hopes to put in place in consultation with the central government before the moratorium expires.

Further, the RBI has superseded the board of directors of the bank, owing to the serious deterioration in the health of the bank, according to another statement. The RBI has appointed Prashant Kumar, ex-DMD and CFO of the State Bank of India (SBI) as the bank's administrator.

Interestingly, these developments come on a day when there were source based stories where the government approved a SBI-led consortium to buy a stake in YES Bank, with sourced-based reports later emerging that SBI and Life Insurance Corporation of India (LIC) would bid for a 49% stake in the bank.

YES Bank closed at ₹37.20 today on the National Stock Exchange, up almost 27%.

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