The Reserve Bank of India Thursday imposed a moratorium on private sector lender Yes Bank and capped withdrawals at Rs 50,000 until further orders. In a notification, the central bank cited the “financial position” of the bank “which has undergone a steady decline” to justify its decision.
The board of Yes Bank has also been superseded with immediate effect, it said in a statement. Former SBI CFO Prashant Kumar has been appointed as the bank’s administrator.
“The bank has also experienced serious governance issues and practices in the recent years which have led to steady decline of the bank,” the notification said.
The central bank assured the depositors of the bank that their “interest will be fully protected and there is no need to panic.” The RBI said it 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.”
SBI may come for Yes Bank’s rescue; to study viability of buying stake in bank
The central government is learnt to have approved a rescue plan for Yes Bank involving a capital injection by a consortium led by State Bank of India, Bloomberg reported earlier today. Yes Bank later said in a filing with the stock exchanges that it was not aware of any such decision, while SBI said it would abide by timelines for disclosures. Yes Bank shares surged more than 25% after reports emerged that a group led by SBI will inject capital into the bank.
Meanwhile, the SBI reportedly agreed to conduct a viability assessment into buying a stake in the troubled bank, a source said. “The board has recommended to undertake a viability study before taking a decision on Yes Bank,” the source, who attended the board meeting, told Reuters.
Two senior finance ministry officials, directly involved in the matter, said “the commercial decision would be taken by the SBI board” and different options were on the table. “We have not so far received the proposal from the SBI,” one of the finance ministry officials, who declined to be named as the discussions were private, told reporters. SBI shares fell as much as 5.4% on the report, before reversing course to close 1% higher.
The plan would throw a lifeline to Yes Bank which has been struggling to raise capital since the middle of last year, as it has faced a surge in bad loans due to the nation’s shadow banking crisis.
In December last year, global ratings agency Moody’s Investors Service downgraded the ratings of the private sector lender, with a negative outlook, expressing concerns on its asset quality troubles and shrinking capital buffers.
Last month, Yes Bank said it has received non-binding offers from foreign investors including JC Flowers & Co, Tilden Capital, Oak Hill Advisors and Silver Point Capital. However, it wasn’t the first time the bank had announced names of potential investors. In November, the bank’s board disclosed several other names before rejecting most of the offers.
The RBI’s clampdown on Yes Bank comes six months after it slapped restrictions on Punjab and Maharashtra Cooperative Bank Ltd (PMC Bank), a leading cooperative bank headquartered in Mumbai, appointed an administrator and superseded its board of directors, sending shock waves among thousands of its depositors. The bank had been put under the scanner by the RBI after “irregularities” were disclosed to the banking regulator.
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