In a day marked by twists and turns on Yes Bank front, the Reserve Bank of India superseded the board of the private lender soon after the Centre imposed a 30-day moratorium on the beleaguered bank.
The central bank will take over the board for 30 days, citing serious deterioration in the financial position of the private lender.
“This (superseding of the board) has been done to quickly restore depositors’ confidence in the bank, including by putting in place a scheme for reconstruction or amalgamation,’’ the central bank said in a late evening statement on Thursday.
The banking regulator has also announced the appointment of Prashant Kumar, former deputy managing director and chief financial officer of State Bank of India, as the administrator of Yes Bank.
Also read: Explained: Why the RBI Has Taken Over Yes Bank’s Board and Capped Withdrawals at Rs 50,000
Depositors can withdraw a maximum of Rs. 50,000 per head even if an individual has more number of accounts, a government gazette notification said. The outstanding amounts on drafts and pay orders issued so far would be paid in full, it said.
The Reserve Bank has, nevertheless, assured the depositors of the bank that their interest would be fully protected. “There is no need to panic,” it added.
The apex bank 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’’.
The central bank’s action comes in the wake of serious decline in the financial health of the private lender following its inability to raise capital to address the escalating loss situation. Its fund-raising ability is also impaired in the face of a rating downgrade. Besides financial health-related worries Yes Bank has been enmeshed in a host of controversies bordering on governance issues. Some of its practices too were under lens for a while now.
The late evening action of the RBI comes amidst reports that suggested that the government may ask public lender State Bank of India (SBI) to form a consortium and pick a stake in the beleaguered private lender. Following these reports, shares of SBI slipped over 5% intra-day but recovered later Thursday. Yes Bank shares, on the other hand, zoomed over 29% on the media reports.
Also read: Yes Bank’s Board is Slowly Resembling a Grim Shakespearean Tragedy
Yes Bank, it may be recalled, had informed exchanges that about half-a-dozen investors, including JC Flowers & Co, Tilden Park Capital Management, OHA (UK) (part of Oak Hill Advisors) and Silver Point Capital, have sent in ‘non-binding’ expressions of interest. The private lender had even postponed its December quarter results citing fund-raising talks. It was supposed to announce earnings by March 14.
Mounting bad loans have been the bane of Yes Bank. The management uncertainty has further compounded its woes. The RBI refused to extend the term of founder Rana Kapoor as the chief executive officer in 2018. Under the new CEO Ravneet Gill, the bank did manage to raise one round of funds through share sale to institutional investors. That was just not sufficient for a bank whose debt has been ballooning.
Now that the regulator has chosen to act without any further delay, all eyes are on how the Yes Bank story will pan out once the one-month period passes. In all likelihood, a rescue act of a kind will be worked out. Who will be asked to play saviour? And, how will that be structured?
If a bigger bank like SBI is to be goaded to do that, as is being speculated, it could mean that the Centre is just not willing to have a repeat of an IL&FS-like situation. The poor asset quality of Yes Bank is a serious point to ponder for the newly-appointed administrator and others concerned.
The fact of the matter, however, is that events such as Yes Bank and the like in the private banking space have dented the trust of India’s depositors. Indeed, they do not augur well for the financial ecosystem which is already experiencing a hyper-churn.