The State Bank of India said it will come out with a restructuring plan while India’s Chief Economic Advisor and Finance Minister assured depositors their money was safe, a day after the Reserve Bank of India placed private lender Yes Bank under a moratorium till April 3.
RBI on Thursday superseded Yes Bank’s board of directors and limited withdrawals to Rs 50,000 during the moratorium period.
For the next month, Yes Bank will be led by the RBI-appointed administrator Prashant Kumar, an ex-chief financial officer of State Bank of India (SBI).
When markets opened on Friday, Yes Bank shares fell as much as 39.95% to Rs 22.10 apiece, the most since its listing on July 12, 2005. The BSE Sensex tanked 1,450 points while the NSE Nifty 50 fell below below 10,900.
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At 11.31 am, Yes Bank shares had extended its fall, down nearly 85% to Rs 6.05.
The National Stock Exchange (NSE) put restrictions on the bank’s shares in various segments, including futures and options, PTI reported.
RBI governor Shaktikanta Das said on Friday that there would be “swift” resolution for Yes Bank and 30 days was outer limit for it.
What is the moratorium?
Yes Bank will not be able to grant or renew any loan or advance, make any investment, incur any liability or agree to disburse any payment.
In a statement, India’s central bank said the moratorium move was necessary to quickly restore depositors’ confidence in the lender after its inability to address potential loan losses and resultant downgrades.
“The bank has also experienced serious governance issues and practices in the recent years which have led to steady decline of the bank,” the RBI said in a statement.
While withdrawal’s have been limited to Rs 50,000, RBI said in exceptional circumstances like medical emergencies, marriages, depositors can withdraw up to Rs five lakh or amount in their accounts, whichever is less.
Customers panic
The bank’s net banking facilities have not been operational since Thursday evening, PTI said.
The bank’s customers told NDTV they had received no advance warning on the situation information.
As people rushed to withdraw money, the bank’s ATMs ran out of cash, reports said. Mumbai Police control room sent SOS alerts to check on Yes Bank ATMs, India Today reported.
Fintech operators who rely on the bank to settle their transactions are also down, according to Hindustan Times.
Digital payments impacted
The moratorium impacted digital payments as PhonePe, which depends on the Yes Bank lender for its transactions, could not operate, PTI reported.
PhonePe is one of India’s largest digital payment platforms. Other fintech operators who rely on Yes Bank to settle their transactions are also down, the report said.
Depositor’s money safe, says Nirmala
Finance Minister Nirmala Sitharaman said the RBI governor had assured her there would be no loss to any Yes Bank depositor.
“Both the RBI and the government are looking at the Yes Bank issue in detail. we have taken a course which will be in everyone’s interest,” she said on Friday.
“The immediate priority is to ensure Yes Bank customers are able to withdraw money within the Rs 50,000 cap,” the minister said.
RBI’s assurances
RBI governor Das said on Friday that the decision on Yes Bank was taken at “larger level”, not at individual entity level and was aimed at ensuring the safety of the financial system.
Das said that non-performing assets situation was much better now than when the bank’s asset quality review was undertaken.
He said RBI was working on improving governance structures in banks and will come out with guidelines in the near future.
Chief Economic Advisor Krishnamurthy Subramanian said all options were under consideration for restructuring the bank and assured depositors’ money that their money was safe.
The last lender to be placed under a similar action was Punjab & Maharashtra Co-operative Bank, in September last year. While the withdrawal limits have been increased over time to Rs 1 lakh now, many PMC Bank depositors are still in the lurch.
The question of SBI’s stake
While several reports said that the State Bank of India is considering buying a stake in Yes Bank, Das said on Thursday he would not respond to these speculations, according to Bloomberg Quint.
However, late Thursday night, SBI said in an exchange filing that its board had given an in-principle approval to look at an investment opportunity in Yes Bank. No negotiations regarding a consortium had taken place, the bank said.
On Friday morning, SBI shares fell nearly 12%, the most since October 5, 2012, Bloomberg Quint said.