Yes Bank Crisis: What the Bank is Allowed to Do for 30 Days As Per RBI Rules

After PMC and the recent case of Sri Guru Raghavendra Sahakara Bank, now Yes Bank has been placed under a period of moratorium for 30 days by the Reserve Bank of India (RBI). RBI has capped withdrawals at Rs 50,000, which has lead to widespread panic amongst account holders of the bank.

While people are lining up outside Yes Bank ATM, net banking, as well as the YES Bank mobile app, is facing intermittent downtime issues as people are trying to withdraw their money. “Dear Customer, Due to heavy traffic on our NetBanking, we are temporarily unable to process your request. Please try again later or use Yes Mobile App to carry out your transactions,” says a message on the bank’s website.

Yes Bank has acknowledged this issue and said: “Hi, we regret the inconvenience caused. We are facing intermittent issues on Net Banking. Request you to please try after some time,” on Twitter to consumers who are stating this issue.

Why RBI has placed Yes Bank under Moratorium?

The central bank has issued a release saying that the financial position of Yes Bank has undergone a steady decline largely due to the 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 recent years which have led to a steady decline of the bank, says RBI.

The Reserve Bank says that it had been in constant engagement with Yes Bank’s management to find ways to strengthen its balance sheet and liquidity. Yes 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 12 February 2020.

These investors did hold discussions with senior officials of the Reserve Bank but for various reasons eventually did not infuse any capital. Therefore, in the absence of a credible revival plan, the RBI had to impose a moratorium under section 45 of the Banking Regulation Act, 1949.

What Yes Bank is Allowed under Moratorium?

As per the directions issued to the bank under section 35A of the Act ibid, here is what Yes Bank is allowed to do:

1. Disbursement to depositors and creditors can be made to the extent permitted by the order of moratorium dated 5 March 2020.
2. Payment may be made of the amounts of bills received for collection on or before and realised before, on or after dated 5 March 2020.
3. Expenditure may be incurred towards meeting the obligations in respect of the following items: salaries of employees; rent, rates and taxes; printing, stationery, etc.; postage and telegrams; and legal expenses not exceeding Rs 50,000 each case, or such other higher amount as may be approved by the Reserve Bank of India for this purpose.
4. Payment of premium payable to the Deposit Insurance and Credit Guarantee Corporation can be made.
5. Expenditure can be incurred on any other item, in so far as it is in the opinion of the banking company, necessary for carrying on its day-to-day administration.