Friday, November 27, 2020
Home News Reports RBI takes over management of Yes Bank and imposes restrictions on withdrawals: All you...

RBI takes over management of Yes Bank and imposes restrictions on withdrawals: All you need to know about the latest crisis in banking sector

The problems in Yes Bank started two years ago, when RBI had found that it had underreported its NPA by a huge amount

Yes Bank became the second bank to collapse in the financial year on Thursday after the Reserve Bank of India imposed restrictions on it, after a similar fate faced by Punjab and Maharashtra Cooperative Bank in September last year. After the bank was in financial trouble for almost two years, RBI finally decided to take action, and imposed a moratorium on the bank for 30 days, along with taking over the management of the bank.

The regulator has imposed a cap of ₹50,000 on withdrawals from accounts in the Yes Bank for a month. In case of medical expenses, higher education or marriage or other ceremonies in the family, or in any unavoidable emergencies, the limit will be extended to ₹5,00,000. If an account holder has more than one account in the bank, the total amount withdrawn from all the accounts can’t exceed this limit. This means, even if someone has multiple accounts with the bank, they can’t withdraw more than ₹50,000 in the next one month.

The bank has been prohibited from granting or renewing any lean or advance, making any investment, incur any liability after March 5. The bank can make payment for regular expenses like salaries, rents, taxes, printing and stationery, premium payment etc, but will need RBI approval for any other expenses.

RBI has also suspended 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 of the bank.

Regarding the circumstances leading to this drastic step, the notification issued by RBI on March 5 says:

“The financial position of Yes Bank Ltd. (the 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. The bank has also experienced serious governance issues and practices in the recent years which have led to steady decline of the bank. The Reserve Bank has been in constant engagement with the bank’s management to find ways to strengthen its balance sheet and liquidity. The bank management had indicated to the Reserve Bank that it was in talks with various investors and they were likely to be successful. The bank was also engaged with a few private equity firms for exploring opportunities to infuse capital as per the filing in stock exchange dated February 12, 2020. These investors did hold discussions with senior officials of the Reserve Bank but for various reasons eventually did not infuse any capital. 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.

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.”

RBI has assured the depositors of the bank that their interest will be fully protected and there no need to panic. The notification said that it will explore and draw up a scheme in the next few days for the bank’s reconstruction or amalgamation, and it will be placed before the moratorium period of thirty days ends so that the depositors are not put to hardship for a long period of time. RBI says that the steps have been taken to quickly restore depositors’ confidence in the bank, including by putting in place a scheme for reconstruction or amalgamation.

The problems in Yes Bank started two years ago, when RBI had found that it had underreported its NPA by a huge amount. As against the ₹748.98 crore of gross NPAs reported by the bank as on March 31, 2016, the RBI assessment showed the same to be at ₹4,925.68 crore, leading to a difference of ₹4,176.70 crore. In the same way, the net NPA was also found to be ₹ 3,318.67 crore higher than the amount reported by the bank. A year later, the difference in NPA had risen to ₹6,355 crore, after the bank had reclassified more assets as NPA on the directions of RBI. Before that, the bank had reported only 19.2% of this amount as NPA.

Read- FactCheck: Can Banks gobble up your deposits as per a new proposed ‘Bail-in’ Bill?

As a result, Yes Bank had reported a massive loss of ₹1,507 crore in April 2017 for the January-March quarter, after bank’s newly appointed CEO Ravneet Gill had started cleanup operations, by making provisions against bad loans. Gill was appointed after RBI had refused an extension of term to founder Rana Kapoor. In May last year, the regulator had appointed a nominee in the board of the bank, a rare move for a private sector bank.

According to reports, two major borrowers of the bank were Jet Airways and IL&FS, both of which have collapsed, unable to pay back their loans.

Yesterday there were reports that SBI and LIC are going to rescue the bank by taking it over, resulting in a jump of its share price, which had reached ₹37. But it has crashed today, after the announcement of RBI, and was trading at around ₹16, falling by almost half.

According to reports, govt is in talks with state run SBI and LIC to join a consortium to infuse capital in the bank. Both the public sector organisations are likely to pick up 49% stack by procuring preferential shares at Rs 2 per share. They are expected to invest ₹490 crore in the bank.

Unlike the PMC bank, which is a regional bank, the impact of the failure of Yes Bank will be huge, as it is a major bank in India. It has 1122 branches across India, and employs more than 18,000 people.

  Support Us  

Whether NDTV or 'The Wire', they never have to worry about funds. In name of saving democracy, they get money from various sources. We need your support to fight them. Please contribute whatever you can afford

OpIndia Staffhttps://www.opindia.com
Staff reporter at OpIndia

Related Articles

Trending now

Minor gang-raped, forced conversion to Islam, threats, caste abuse: Details of 11 cases in which UP SIT, formed to probe Love Jihad, found criminality

To curb growing menace of Love Jihad, Kanpur police under guidance of the Yogi govt in Uttar Pradesh formed an SIT

Congress party’s Lucknow office locked by employees over non-payment of salaries, office-bearers blocked from entering the office

Protesting against the Congress party for unpaid salaries, the upset staffers and the employees locked up the gates of the Congress office

Aziz Burney’s ’26/11 RSS ki Saazish’: Read how the Congress-favourite Urdu journalist gave Pakistan a clean chit and blamed Indian Army

Through his articles, Burney had tried to give a clean chit to terror-state of Pakistan by claiming that it was not the ISI or LeT that was behind the attack, but the RSS with covert support from Mossad and the CIA.

Caravan Magazine asked us about our coverage on Wikipedia and its Left bias – Here is our detailed response

OpIndia coverage of Wikipedia lies started after Delhi Riots and Caravan Magazine, with its strong Left bias, is clearly not happy about it

‘Sant’ Rampal’s devotees have been flooding social media to tell Muslims how they don’t know Islam. Read bizarre details

Born in 1951 as Rampal Singh Jatin in Punjab, the 69-year-old self-styled godman is currently lodged in Hisar central jail for murder charges.

Odisha: Largest ever vigilance raid in state unearths massive wealth gathered by IFS officer, fancy cars, ultra-luxurious lifestyle

Pathak's family reportedly owns a lavish apartment in Bhubaneswar with Italian marble flooring, ivory furnitures and other luxuries. The son is engaged to an MLA's daughter.

Recently Popular

Hyderabad elections: Owaisi makes ‘beef biriyani’ sly on BJP leaders, Raja Singh offers him pork biriyani

As an insult to BJP leaders, Owaisi had stated that they should have some biriyani at a particular hotel in Hyderabad that is famous for beef dishes.

When Sonia Gandhi trusted Ahmed Patel for conveying to PV Narasimha Rao’s family that his funeral will not be held in Delhi

Sanjaya Baru had said Ahmed Patel approached him to let PV Narasimha Rao's son know about Sonia Gandhi's message.

Odisha: Largest ever vigilance raid in state unearths massive wealth gathered by IFS officer, fancy cars, ultra-luxurious lifestyle

Pathak's family reportedly owns a lavish apartment in Bhubaneswar with Italian marble flooring, ivory furnitures and other luxuries. The son is engaged to an MLA's daughter.

Remembering the role Barkha Dutt played in endangering the lives of 100s of civilians during the 26/11 Mumbai terror attack

A look back at how live coverage by journalists like Barkha Dutt and other journalists endangered lives of thousands of people during 26/11 Mumbai terror attack.

During 26/11 Mumbai attack, Param Bir Singh refused to be on ground and take on terrorists, then Mumbai CP Hasan Gafoor had said

Hasan Gafoor, who was the Mumbai Commissioner of Police during the 26/11 Mumbai terror attacks, had accused senior police officials, including Param Bir Singh of not taking on the terrorists.

How Congress lost Gujarat to save Ahmed Patel’s Rajya Sabha seat

The 2017 Gujarat Rajya Sabha elections which were contested by Ahmed Patel were one of the lowest points for Congress.
- Advertisement -

Karan Johar apologises to Madhur Bhandarkar for tweaking his title without permission, Bhandarkar calls Johar’s act morally and ethically wrong

Madhur Bhandarkar had accused Karan Johar of tweaking his registered title 'Bollywood wives' for an upcoming web series on Netflix

District court in UP sentences one Sadab Alam to 20-years imprisonment for kidnapping and raping a minor girl

The minor victim was recovered by the police from West Bengal. She had told before the court that she was raped by Sadab Alam.

“Wikipedia has become a huge moral hazard”: Co-founder Larry Sanger accuses the website of turning into a ‘monocultural establishment organ of propaganda’

Larry Sanger accuses Wikipedia of no longer adhering to the principle of providing information from a neutral point of view

Uttar Pradesh ranks number one in providing jobs to migrant workers by generating 10 crore person-days under Gareeb Kalyan Rojgar Abhiyan

Uttar Pradesh government has spent 9,329.57 Crores on the project and generated 10,58,17,358 Person-days for migrant workers

‘Professor’ Ashok Swain, known for his anti-India rhetoric and Hinduphobia, deactivates his Twitter account saying he needed a break

Ashok Swain was often seen peddling anti-India narrative on social media that resonated well with Pakistan and liberals in India

Months after staying at the RIMS director’s bungalow, scam convicted RJD chief Lalu Yadav shifted back to RIMS ward

The newly appointed RIMS Director had to stay in a guest house because Lalu Yadav had been staying in his official bungalow since August

Congress leaders and supporters use old photographs to attack Modi government on farmer protests

The pictures used by Youth Congress and then mechanically copied by rest of the Congress coteries are actually from the year 2018

Pakistani man gets AK-47 rifle as wedding gift from his mother-in-law, video goes viral

In the viral video, the mother-in-law of the groom is seen gifting him a Kalashnikov rifle as the crowd cheered.

Minor gang-raped, forced conversion to Islam, threats, caste abuse: Details of 11 cases in which UP SIT, formed to probe Love Jihad, found criminality

To curb growing menace of Love Jihad, Kanpur police under guidance of the Yogi govt in Uttar Pradesh formed an SIT

Partying in 2008, ignoring now: Rahul Gandhi’s silence on the 26/11 Mumbai attacks continues

Like last year, Rahul Gandhi has completely ignored the 26/11 Mumbai attacks and has not shared any tweet about it.

Connect with us

245,563FansLike
489,296FollowersFollow
20,200SubscribersSubscribe