The government has put private sector lender Yes Bank under moratorium till April 3 and capped deposit withdrawal at ₹50,000 after severe deterioration of the bank’s financial position. The decision was taken by the government after an application from Reserve Bank of India (RBI), a Gazette notification said.
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Following the moratorium, the Reserve Bank of India (RBI) superseded the board of the bank and has appointed Prashant Kumar - the deputy managing director and chief financial officer of State Bank of India as the administrator. Mr. Kumar resigned from SBI to take up the role of the administrator.
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While assuring depositors of the bank that there is no need to panic, 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 Government, it will put the plan well before the end of the moratorium period of thirty days. During the moratorium period the bank cannot grant or renew any loan or advance, make any investment but is allowed make certain expenses like salaries of employees.
RBI said the financial position of the bank deteriorated as the it failed to raise capital to address loan losses which resulted in rating downgrades and triggered 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,” RBI said.
RBI said it was in constant engagement with the bank’s management to find ways to strengthen its balance sheet and liquidity. While the bank management had indicated that it was in talks with various investors for capital raising but those plans did not materialise. The regulator said it gave adequate opportunity to the bank to draw credible revival plan, which did not materialise. “In the meantime, the bank was facing regular outflow of liquidity,” RBI said while reasoning for its suggestion to the government for the moratorium.
While the moratorium was announced after close of trading hours, Yes Bank shares had shot up 26% after reports that the government has prepared a bail out plan led by State Bank of India.
