NEW DELHI: The government has imposed a withdrawal limit of 50,000 rupees for depositors of beleaguered private lender Yes Bank for one month. An official notification issued by the finance ministry said that the cap will stay in effect till April 3.
The limit on withdrawal comes with a few exemptions, in cases like medical emergency, higher education, marriage and unavoidable emergency.
In a separate release, Reserve Bank of India said that Yes Bank’s board has been superseded for a period of 30 days owing to a serious deterioration in the financial position of the private lender. Former Chief Financial Officer of SBI Prashant Kumar has been appointed as administrator for Yes Bank.
Due to the restrictions, Yes Bank’s shares have fallen sharply on the stock market.
Investors should also note that no Futures and Options (F&O) contracts shall be available in Yes Bank for trading in the equity derivatives segment from May 29, 2020.
The development has also had a wider effect on banking stocks, which were trading in red on Friday.
The banking regulator on Thursday superseded the board of the troubled private lender with immediate effect and placed it under a 30-day moratorium.
The regulator has also appointed former State Bank of India CFO Prashant Kumar to pull the bank out of a crisis. Soon after, the SBI Board has given the State Bank of India in-principle approval to invest in the capital-starved Yes Bank.
The announcement came hours after Yes Bank was placed under a moratorium.
RBI has assured depositors of Yes Bank that their interest will be fully protected and there is no need to panic. In terms of the provisions of the Banking Regulation Act, the Reserve Bank will explore and draw up a scheme in the next few days for the bank’s reconstruction or amalgamation.
The Fate of Mutual Funds:
About 32 individual schemes of mutual funds are exposed to Yes Bank debt and total exposure stands at ₹2,848 crores. Many of these bonds are AT 1 (Additional Tier 1) Bonds which are designed to absorb losses when the capital of the bank falls below certain levels.
Nippon India Mutual Fund which has the largest exposure to Yes bank, in a note to distributors said that it has written off its entire exposure to Yes Bank. Inflows into Nippon schemes with Yes Bank exposure have also been restricted to ₹2 lakh per investor.
The largest exposure of ₹637.8 crore is in Nippon India Equity Hybrid Fund (8.11%) of its assets, followed by Nippon India Credit Risk Fund at 540.1 crore (10.96% of its assets) and Nippon India Strategic Debt Fund at 436.3 crore (21.25% of its assets).
Impact on FinTech Partners:
Fintech companies such as PhonePe have suffered after the Reserve Bank of India’s (RBI) moratorium on Yes Bank affected multiple services overnight, disrupting the ecosystem.
Unified Payments Interface (UPI) based transactions, a major service point for digital payment services came to a halt, and PhonePe which is the largest payments partner of the bank was among the worst affected.
On the whole, multiple industry sources told Moneycontrol that fintech partners which utilise Application Programming Interface (API) Banking have felt the jolt. API banking is a set of protocols or tools that allows third-party platforms access to a bank’s services.
Many associated professionals have revealed that everything – be it a transaction or settlement – that had to go through the bank has stopped functioning.
How Did It Begin:
The crisis at YES Bank started way back in 2018 when the Reserve Bank of India in September 2019 cut short the founding promoter Rana Kapoor’s new three-year term as CEO of the bank till January 31, 2019. YES Bank’s shares tanked 30 per cent the next day and continued the downward spiral.
Later in September 2019, Rana Kapoor said he had the interest of the shareholders in his mind and would never sell his promoter shares. Instead, he would pass on them to his daughter.
In October, the RBI refused to Rana Kapoor more time and asked the promoters of the bank to find a new CEO. All this led to poor quarterly results and the asset quality deteriorated.