Why did Yes Bank collapse?


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Yes Bank has joined the growing list of financial institutions such as IL&FS, DHFL, PMC bank that have come under the cloud for serious non-governance/compliance issues. A continuous decline in the asset quality of one of the most popular retail banks of recent times, prompted RBI to come up with a series of measures to maintain stability in the financial sector.

What is the revival plan proposed by RBI?

On 5th March 2020, RBI placed Yes Bank under a moratorium under which it took control of the bank for 30 days to work out a revival plan. RBI is in discussion with SBI and LIC Housing Finance to take an investment stake in the bank and revive the bank with a new Board of Directors in place.

What is the proposed moratorium for Yes Bank?

Moratorium means that the normal operations of the banks have been suspended temporarily for a month. So, what can the moratorium and the revival mean for various stakeholders of Yes Bank.

Implications for Yes Bank depositors

  1. Depositors are not allowed to withdraw more than ₹50,000/- from their account till 4th April 2020.
  2. The limit applies to all accounts in the name of an individual across savings, current and time deposits.
  3. RBI allows for withdrawal of up to ₹5 lakh for depositors for specific cases like payment of medical bills, higher education expenses, etc. However, the process to access this amount is yet to be clarified in a more detailed RBI order detailed order on this issue.
  4. The limit to withdraw money may be worrisome for depositors who have a single account with Yes Bank and hence, their savings may be stuck in the account till the time the bank decides to lift up the moratorium.
  5. A moratorium on current account transactions may make it difficult for small traders and businessmen to carry their daily business, especially so if they don’t have another current account. Small traders and businessmen should immediately inform their counter parties to stop any due cheque payments in Yes Bank.
  6. Salary account holders who received their salary on 1st of March, will not be able to spend more than ₹50,000 from their accounts. Salary account holders should immediately inform their employers to shift their accounts to another bank.
  7. Deposit insurance is available only up to ₹5,00,000 of deposits of an individual across all accounts of the bank. RBI has though assured to safeguard the interests of depositors.
  8. Depositors of Yes Bank can withdraw the money using the bank’s debit card and from its ATM. However, during the moratorium withdrawal of deposits through cheque, RTGS, NEFT, online facilities and demand draft has been suspended.
  9. Depositors are allowed to issue Stop payment instructions on any cheques issued from their Yes Bank Accounts.

Implications for Yes Bank borrowers

  1. Yes Bank borrowers should continue to repay their EMIs regularly to avoid any delay or default in repayment. This is extremely important to reduce any adverse impact on their credit score.
  2. Home Loan Borrowers of Yes Bank need to bear in mind that the bank may not be able to make the tranche payment for builders. It is advisable they clarify with the bank, if they would make their committed disbursement to the builders. They should also try to arrange for additional funds to avoid a default on any committed home loan payments.
  3. Gold Loan Borrowers of Yes Bank should be able to repay their loan and take out their pledged Gold as the moratorium is only on withdrawal of deposits from the bank.
  4. Personal Loan Borrowers of Yes Bank have little to worry as they can carry on with their regular EMI repayments to bank and ensure that there is no delay or default in payments.
  5. Yes Bank customers with a safety locker deposit for their gold and jewelry can continue to operate their lockers as the bank continues with its regular working hours. They are free to withdraw their jewelry from the lockers.

Even as the moratorium is for a month, what needs to be seen is the final draft of revival plan. It is expected that RBI will relax the conditions to withdraw the money from deposit accounts in a gradual manner to avoid a run down on the bank.

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