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YES Bank : Restrictions Put By RBI

WHAT IS CURRENT RESTRICTIONS ?

Government on request of RBI has put YES bank under moratorium from 6pm March 5th till April 3rd , that means that there cannot be any legal action taken against the bank if any commitments goes unfulfilled during the said period. Second restriction is on payment to the depositors cannot be more than Rs.50,000 during the period until a written request for certain conditional payments not exceeding amount of Rs. 5,00,000 is approved by the RBI administrator (Mr. Prashant Kumar) or a committee set up under him.

WHAT IS PROBLEM & SOLUTION BEING WORKED ?

The bank has been trying to raise capital since the new management took over and was successful in raising a first tranche funded by FII & DII but as the legacy issues were large and it had exposure to a lot of cases under IBC there was a need of larger provisioning resulting in need to large capital requirement.But last couple of tries were unsuccessful and as March 31st approaches there is an urgent need of capital as provisions will be higher in this quarter as per norms changes on default disclosures.

RBI in the release has mentioned that it is a temporary step taken to assure that there is no panic reaction from the depositors as that is the main raw material for the bank. It has also mentioned that it is working towards finding a solution either by reconstruction of operations or amalgamation with any other bank.

SBI has informed yesterday in reply to clarification that it has received in-principle approval from board to explore investment opportunity in the bank.

WHY IT IS AN IMPORTANT BANK ?

The bank as very significant systematic importance and high value deposits :

1. Total Deposits amount to Rs. 2,09,947 cr ( Decrease of 7-10% QoQ) of that Rs.39,600 cr is in Savings Account and CASA ratio is at 30.8%.

2. Retail Term Deposits amount to Rs. 61,700 cr that is 29.5% of total term deposits and Corporate Term Deposits amount to Rs. 82,700cr.

3. In Terms of New Age Payment Systems -

a) Ranked 1st as Remitter Bank by NPCI under IMPS processing 60 mn transactions in Q2FY20.

b) Has 41% market share by value in Aadhar Enable Payment System.

c) Has 39.7% market share by volume in UPI transactions and is main merchant bank for PhonePe app.

ANY SIMILAR EVENT IN INDIAN BANK HISTORY ?

Global Trust and United Western Bank amalgamations were to due reasons where running independent operations was not viable and the bank it got merged were able to absorb the advance quality impact to major extent.

Recent PMC Bank withdrawal restrictions are also not comparable as there a fraud on a large scale that resulted in taking such an action. One major account that had defaulted was majority proportion of advances of the bank.

It is not comparable to fallout of IL&FS or DHFL as the operational closure did not have major impact on country rating.

This is a unique and first time situation that the banking system faces.

OUR VIEW :

Do not panic as shareholder or depositor as the bank is very systematically important explained above. There would be regular communication by RBI and Government during the period to calm down the situation as it has other situations.

Would be best to hold your positions and not any new positions on anticipation of positive outcome.