Deposits With Yes Bank Are Safe: RBI Governor
Ahead of a moratorium on Yes Bank being lifted, RBI Governor Shaktikanta Das assured that all deposits with the bank are safe.
Days ahead of a moratorium imposed on Yes Bank Ltd. is set to be lifted, the Reserve Bank of India governor assured depositors that their money is safe and that the regulator stands ready to provide liquidity if needed.
Yes Bank was placed under a moratorium on March 5, which included a cap of Rs 50,000 on deposit withdrawals. Since then, the government and the RBI have approved a scheme of reconstruction for the bank, which involves eight lenders infusing over Rs 12,000 crore in equity. Following that, the bank is set to lift deposit restrictions on Wednesday at 6 pm.
Once the moratoium is lifted, “depositors can withdraw their money but there is no need for them to do panic withdrawals and have any undue worry. The underlying theme for the [reconstruction] scheme is based on protecting the interest of depositors,” said Das at a press conference in Mumbai.
If needed, the RBI would step in to provide liquidity support, governor Das said. The RBI could provide the bank with a liquidity line of Rs 8,000-9,000 crore against securities worth Rs 10,000 crore, BloombergQuint had reported on March 9.
Yes Bank saw its deposit base reduce by a third between September and March 5, showed earnings released by the lender. Its deposits stood at Rs 1.37 lakh crore at the time the moratorium was imposed compared to Rs 2.09 lakh crore at the end of September 2019.
We do believe, and the investing banks, including SBI and the private banks believe, that this is a credible revival plan for Yes Bank and it will work. Depositors should be confident that their deposits are safe.Shaktikanta Das, Governor, RBI
The choice to allow Yes Bank to continue as a standalone entity rather than merge it with a stronger lender has raised questions about the impact on depositor sentiment. RBI Deputy Governor NS Vishwanathan said both options were weighed and it was decided that a scheme of reconstruction was more viable. “Our effort was to find a bank led private solution. However, when that did not happen we had to use the scheme[route],” he said.
Das said Yes Bank’s revival plan was a first of its kind, public-private partnership.
As part of the plan, SBI will invest Rs 6,050 crore in fresh equity. Several private banks and one housing finance company Housing Development Finance Corporation Ltd., will also participate in the capital infusion. SBI will need to maintain a minimum shareholding of 26 percent in Yes Bank for three years. Other investing banks and existing retail investors will see 75 percent of their shares locked in for three years.
Additional tier-1 securities issued by the bank will be written-off as part of the scheme, according to a disclosure made by the lender. AT-1 bonds are being written down as per contract terms, Das said, responding to criticism over the decision.
Over the weekend, Yes bank reported a net loss of Rs 18,564 crore for the third quarter of 2019-20. Gross non-performing assets of the bank rose to Rs 40,709.20 crore, or nearly 19 percent of advances, as of December 2019. The banks’s core equity tier-1 ratio fell to 0.6 percent at the end of third quarter from 8.7 percent as on Sept. 30.
Asked whether the bank’s high bad loan ratio and still low capital levels would lead to the lender being placed under the RBI’s prompt corrective action framework, Das said there was no such plan. “The capital infusion of Rs 10,000 crore is adequate to ensure compliance with regulatory requirements on capital adequacy and net NPA,” Das said.
When asked why the RBI had not put the lender under the corrective action framework earlier, Das said the situation in the bank was being monitored everyday for the last seven to eight months.