The Reserve Bank of India and central government took the drastic step of imposing a moratorium on YES Bank and seizing control of the bank's board citing YES Bank's deteriorating financial health, late Thursday blindsiding financial markets and depositors.
Since then, in a demonetisation-like deja vu, long lines have been reported outside YES Bank's branches with depositors wanting to withdraw their funds and reports of businesses dependent on the bank being unable to access their account, trickling in.
This is second major instance of such restrictions being imposed on a major bank in India, with the Punjab and Maharashtra Co-operative Bank (PMC Bank) also seeing a similar fate in September 2019.
The freeze has been imposed for a period of 30 days starting However, the impact is expected to be felt the hardest by depositors of the bank, on whom a withdrawal restriction of ₹50,000 has been imposed across their bank accounts.
The central government outlined the technicalities of the restrictions in an official gazette. BOOM tells you five things you need to know:
1. ₹50,000 limit on all accounts
All bank account holders with YES Bank will only be able to access ₹50,000 of their funds during the moratorium period. This is across all accounts that one may hold with the bank.
The same limit also applies to YES Bank itself when it comes to repaying its creditors. However, this limit will not apply pay orders or demand drafts issued by the bank before March 5, or towards any bills submitted for collection before this date.
2. Exceptions to the limit
Quite unlike the PMC Bank episode, where there were no provisions for meeting unforeseen expenses, the moratorium has provisions for the depositors to exceed the withdrawal limit in cases of:
- Medical treatment
- Payments towards higher education abroad
- Expenses related to marriage ceremonies
- Unavoidable emergencies
However, this is subject to a top limit of ₹5 lakhs or the actual bank account balance of the depositor, whichever is lower
3. Payment systems disrupted
According to various media reports, YES Bank is facing serious disruptions in its electronic payment systems, with the bank's point of sales terminals (PoS terminals) becoming inactive, and with payments through credit and debit cards being rendered inactive, according to BloombergQuint. There is are also reports that the ATMs of YES Bank are running dry, with the NPCI reportedly taking them offline.
BOOM also found that YES Bank's personal banking gateway on their website is unavailable, which has been an intermittent problem since last night.
This expected to hit transactions being carried out by the bank, as YES Bank has a 1.5% market shares in mobile banking transaction volumes according to RBI data pertaining to February 2020.
4. Dues to be adjusted before withdrawal
If a depositor hold some payable dues that they owe the bank, or any sureties, it will be adjusted against the withdrawal limit of ₹50,000 that has been provided.
5. YES Bank to honour releases of collateral
In cases pertaining to collateral or mortgage that have been pledged, the bank would be allowed to release them unconditionally upon realising all dues collected against them. In case of partial payment, the bank would be required to maintain collateral proportions that was being maintained before the moratorium, or below the stipulated proportions, whichever is higher.
The RBI and the central government has assured investors not to panic, and has assured that deposits of YES Bank customers is safe. The duo are expected to announce a restructure package for the bank, and are expected to announce one soon. It is also being reported that a consortium led by the State Bank of India and the Life Insurance Corporation of India was to buy a 49% stake in the bank.
YES Bank shareholders too have been losers on Friday, with the bank's shares falling 56.11% and closing at ₹16.15 on the National Stock Exchange. In comparison, the benchmark NIFTY index fell 2.48%, settling 11 points below the 11,000 point mark.
