The Central Government imposes moratorium on YES Bank in light of a recommendation made by the Reserve Bank of India

The Central Government imposes moratorium on YES Bank in light of a recommendation made by the Reserve Bank of India

The Reserve Bank of India on Thursday evening superseded the Board of Directors and imposing a moratorium on withdrawals and advances for a month upon the YES Bank as the bank’s financials deteriorated.

Prior Facts:

This kind of deteriorating situation had arisen for depositors at PMC Bank last September. The crisis first came to light on September 24, 2019, when RBI placed curbs on the activities of the Mumbai-based bank for six months. There was panic among depositors as the central bank limited the amount a customer could withdraw from their account during the next six months to Rs 1,000 at first. Later, that limit was raised to Rs 25,000. Anticipating a similar panic situation, RBI has this time issued an upfront assurance to YES Bank depositors, saying that their interest will be fully protected.

Key Features:

  • Depositors can now pull out a maximum of Rs 50,000 per head even if an individual has more than one account.
  • The outstanding amounts on drafts and pay orders issued so far would be paid in full.
  • The bank can breach the cap on withdrawals for exceptional events in a depositor’s life such as a medical emergency, payment for higher education or for marriages and this shall not exceed Rs 5 lakh.
  • RBI assures that assures the depositors of the bank that their interest will be fully protected and there is no need to panic.
  • The Government gazette notification pointed out that, “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 and with the approval of the Central Government, put the same in place well before the period of moratorium of 39 days ends so that the depositors are not put to hardship for a long period of time”.
  • Centre stayed the “commencement or continuance of all actions and proceedings” against the capital-starved YES Bank.
  • In exercise of the powers conferred under 36ACA of the Banking Regulation Act 1949, the RBI stated that the central bank has superseded the private lender’s board for 30 days “owing to serious deterioration in the financial position of the Bank.”
  • State Bank of India’s former CFO Prashant Kumar was appointed YES Bank’s administrator under Section 36ACA (2) of the Act.
  • RBI added that, the bank has also experienced serious governance issues and practices in the recent years which have led to steady decline of the bank.
  • RBI said that, the financial position of YES Bank has undergone a steady decline largely due to inability to raise capital to address potential loan losses and resultant downgrades, triggering invocation of bond covenants by investors, and withdrawal of deposits.
  • RBI said that, in the absence of a credible revival plan, and in public interest and the interest of the bank’s depositors, it (the RBI) had no alternative but to apply to the Central Government for imposing a moratorium under section 45 of the Banking Regulation Act, 1949.
  • The Reserve Bank has also issued certain directions to the bank under section 35A of the Act.

Edited by J. Madonna Jephi

Approved & Published – Sakshi Raje

Reference:

  • Government Gazette Notification published in the Gazette of India (Extraordinary), CG-DL-E-05032020-216550, dated March 05, 2020.
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Vaibhav Goyal is a 3rd year BA.LLB (H) student of UILS, Panjab University, Chandigarh, India. He also basically belongs to the “City Beautiful-Chandigarh”. He had interned and have work experience at various Central and State Government bodies of India including the National Human Rights Commission, New Delhi; the Central Information Commission, New Delhi; U.T. Legal Services Authority, Chandigarh, etc. His research projects includes the study on the Right to Emergency Services (PSHRC), Resettlement of Migrant People (NHRC), Implications of RTI in Financial Institutions (CIC), etc. His publications involve articles in different fields of law like administrative, jurisprudence, etc. on online journals including the Juscholars Blog, Burnished Law Journal, etc. His research paper on Prison Reform was published in the Panjab University Journal and his paper was selected in category of best abstract on the topic of Naxalism: A State of Lawlessness and Arbitrariness. He had scored well in various competitions of law consisting of Quiz, Essay Writing, Lecture, Declamation, etc. He had also participated in various conferences including the World Law Forum Conference on Strategic Lawsuits on Public Participation held in New Delhi on Oct 20, 2018 and the National Law Conclave 2020 held at Vigyan Bhawan, New Delhi on Jan 11, 2020.