Finance Minister Press Conference: Will Not Let Any Institution Fall Off A Cliff, Says Nirmala Sitharaman

Finance Minister Nirmala Sitharman today said that the government will not let any financial institution collapse as she announced the Reserve Bank of India's restructuring plan for embattled Yes Bank Ltd.

“As I have repeatedly said, I will not allow for any institution to fall off a cliff,” Sitharaman said in a press conference. “We can assure all depositors that their money is safe. This will be resolved very speedily and a restructuring of the bank will happen.”

Sitharaman explained that once the RBI’s restructuring of Yes Bank is completed, a new board of directors will be put in place. Deposits and liabilities will continue unaffected and employment and salaries will be assured for at least one year, she said.

The Finance Minister said that the government and the banking regulator had been monitoring the situation at Yes Bank since 2017. Sitharaman said, she herself had become directly involved in the matter from May 2019 onwards.

Sitharaman pointed at corporate governance lapses, wrong asset classification, weak compliance and risky credit decisions as few of the things that were wrong at the Mumbai-based private lender.

Yes Bank did make some “genuine attempts” to raise capital and improve their financial health, Sitharaman said. However, by November 2019 it was clear that “there was no hope”. That is when the RBI and government started actively engaging with the bank, Sitharaman said.

The Reserve Bank of India has announced a scheme of reconstruction for Yes Bank details of which can be seen here.

Finance Minister Nirmala Sitharaman will be addressing the media at 4:30 p.m. in New Delhi today.

This comes in the backdrop of the government placing Yes Bank Ltd. under moratorium till April 3 and capping withdrawals at Rs 50,000 during the same period. Besides, the Reserve Bank of India has superseded the private lender’s board citing a steady deterioration of finances.

Earlier in the day, Sitharaman told reporters that the RBI is working on an early resolution of Yes Bank and assured its depositors that their money is safe.

Restrictions imposed on the troubled private lender and supersession of its board are steps taken in the interests of depositors, the lender and the economy, Sitharaman said.

The RBI has acted swiftly at the right time and came up with an amicable solution for Yes Bank, Sitharaman said, adding that resolution will be found at the earliest. “The message I want to give to the investors is both the RBI and Government of India are looking at this with all details before them and not just today, I have personally monitored the situation over a couple of months with RBI.”

Here’s more related coverage around the Yes Bank crisis:

• Here’s How Much Mutual Funds Are Exposed To Yes Bank Debt
• Yes Bank Shares Fall 85% Intraday To Lowest On Record
• Max Financial Falls The Most Since July 2016 On Yes Bank Crisis
• Mutual Funds With Equity Exposure To Yes Bank
• SBI Gets Board Approval To Explore Investment In Yes Bank, Shares Fall
• Yes Bank’s Bonfire Of Insanity Was Left To Burn
• Indian Rupee Slides, Bonds Rally After RBI Seizes Yes Bank
• What Experts Made Of Moratorium On Yes Bank
• Government Puts Yes Bank Under Moratorium, RBI Supersedes Board, Withdrawals Capped At Rs 50,000

• It is not that the Yes Bank matter has come up just yesterday.
• Would like to place it on record that since 2017 the RBI has been closely monitoring Yes Bank.
• From May 2019 onwards, I have been directly involved in working on the matter.
• The government has continuously monitored the matter.

• Governance issues at the bank were concerning.
• There was weak compliance and wrong asset classification and risky credit decisions.

Finance Minister Nirmala Sitharaman said that by November 2019 there was “no hope” for the bank to get the much needed capital.

• Yes Bank made a lot of genuine attempts to bring in fresh equity for the bank.
• And we had to give them space and margin.
• Once in November 19, there was no hope of them getting the money, things came to a serious pass.
• That is when we intentionally engaged a lot of other ideas.

The Reserve Bank of India has announced a scheme of reconstruction for Yes Bank. A few of the feature of the scheme are as under:

• State Bank of India has expressed willingness to make investments in Yes Bank.
• Yes Bank’s authorised capital to be Rs 5,000 crore.
• Yes Bank’s equity shares to be worth Rs 4,800 crore.
• Investor bank to invest up to 49 percent in Yes Bank.
• Investor bank to not reduce holding below 26 percent before three years.
• Investor bank to hold 49 percent in Yes Bank after infusion.
• Investor bank to pay at least Rs 10 per share for Yes Bank equity.
• Investor bank to have two director on reconstructed Yes Bank.

Read more here.

Under the restructuring plan by RBI:

• A new board will be appointed after the restructuring happens.
• Deposits and liabilities will continue unaffected.
• Employment and salaries assured for at least one year.

The Finance Minister said that SEBI has already started acting on the corporate governance lapses at Yes Bank and the markets regulator will be looking into the situation.

Finance Minister said that she has asked the RBI to submit a report on the reasons that led to the failure of Yes Bank.

The RBI would prepare a report on regulatory gaps, and “cause of the problem, and the role of the individuals in causing and addressing the problem,” Sitharaman said. The RBI will also report the government on the adequacy norms maintained by Yes Bank.

“I want the RBI to ensure that the due process of law happens with urgency,” Sitharaman said.