Withdrawal limit to 'govt bailout': 10 points about Yes Bank's troubles

Yes Bank has been placed under moratorium and the government is reportedly planning a rescue plan involving a capital injection by a consortium led by State Bank of India.

Troubled private sector lender, YES Bank was on Thursday placed under a "moratorium" as the Reserve Bank of India (RBI) capped depositor’s withdrawal limit at Rs 50,000 per account for a month.

The decision was taken in consultation with the government to protect depositors' interest. The central bank also superseded the board of YES Bank, which has not been able to raise the required capital for the last six months and appointed former Chief Financial Officer of SBI, Prashant Kumar as the administrator. 

Here are key points from the RBI's decision 

* The RBI capped the withdrawal limit for depositors of the bank at Rs 50,000 per account for a month. Payment can be made of the amounts of bills received for collection on or before and realised before, on or after the moratorium. 

* During the period of the moratorium the bank can not grant or renew any loan, make an investment, incur liability, agree to disburse payment, whether in the discharge of its liabilities and obligations and will not be able to enter into any agreement. 

* The moratorium allows the bank to incur expenditure in terms of salaries of employees, rent, rates and taxes, printing, stationery, postage, telegrams, legal expenses not exceeding Rs 50,000. Expenditure can be incurred on any other item in the bank's opinion necessary for carrying out its day-to-day administration.

* If the banking company desires to incur any other expenditure on account of emergency during the currency of these directions, it has to take special permission from the Reserve Bank of India. 

* The RBI in its statement said 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 the invocation of bond covenants by investors, and withdrawal of deposits. 

* The RBi said that the bank has experienced serious governance issues and practices in recent years which have led to steady decline. 

* The Reserve Bank assured the depositors that their interest will be fully protected and there is no need to panic. It will draw up a scheme in the next few days for the bank’s reconstruction and with the approval of the government put the same in place well before the period of the moratorium of 30 days.  

* The RBI added that it made all efforts to facilitate a process and gave an adequate opportunity to the bank’s management to draw up a credible revival plan, which did not materialise. In the meantime, the bank was facing a regular outflow of liquidity.

* Over the past few months, YES Bank has struggled to raise capital – nearly $2 billion – it desperately needs to stay above regulatory requirements. The bank is battling bad loans due to its exposure to troubled sectors. 

* SBI and LIC are set to pick up 49 per cent stake in YES Bank by acquiring preferential shares in the private lender at Rs 2 per share. The deal size is estimated at 490 crore. As regards regulations, SBI will likely be given exemption from making an open offer.