Reserve Bank of India on Thursday evening superseded the board of directors of Rana Kapoor-promoted Yes Bank and limited cash withdrawal to Rs 50,000. However, depositors can withdraw up to Rs 5 lakh for medical treatment, higher education fees, expenses on marriage and other ceremonies, and “unavoidable emergencies”. The cap applies across even multiple accounts of the same depositor.
RBI has appointed deputy managing director and chief finance officer of State Bank of India, Prashant Kumar, as an administrator of the bank. Although the central bank has said that the moratorium will last for 30 days, sources said that a plan involving SBI is in the works. This includes the possibility of a revival by an SBI-led consortium of new owners including Life Insurance Corporation.
In a statement, RBI said it had given the bank’s management enough time to try and raise capital and find a ‘market-led solution’ to its problems. However, the bank failed to find investors who would support a revival package.
“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… effective from today,” the RBI said.
According to government sources, the management led by Ravneet Gill kept pushing the deadline for raising capital, prompting RBI to finally act. “RBI had to step in because it did not want to create systemic issues,” said a senior official.
While depositors will be protected up to Rs 5 lakh, thanks to deposit insurance cover and the proposed reconstruction/amalgamation that RBI is working on, shareholders are likely to lose out. They include LIC, which holds an 8% stake, and mutual funds such as Nippon Life, Franklin Templeton and UTI Asset Management.
JP Morgan said in a report, “We believe forced bailout investors will likely want the bank to be acquired at near-zero value to account for risks associated with the stress book and likely loss of deposits.”
Yes Bank’s troubles first came to light in 2017 when RBI said that its bad loans were more than the bank had divulged. Following an inspection of the bank, RBI denied an extension to its founder and chief executive Kapoor.
In subsequent years new defaults came to light. Some of the big defaulters to whom the bank had advanced funds included IL&FS, Anil Ambani group, CG Power, Cox & Kings, Café Coffee Day, Essel group, Essar Power, Vardaraj Cement, Radius Developers, and Mantri Group.
Kapoor, an industry veteran, had floated Yes in 2003 and soon scaled it up. Banking sources said that the bank engaged in high-risk lending, providing advances to those who could not raise funds elsewhere.
RBI began working on a moratorium a few days ago after it became clear that Yes Bank was unable to put in place a “credible proposal” for capital infusion.
Yes, your money will be very safe. Considering you are going to invest in the share of this Bank, This is altogether a different story. It has taken a 50% dip in the share price and for a bank with such strong fundamentals this wasn’t expected.