The Finance Ministry Thursday, March 5 issued an order of moratorium against the beleaguered private lender Yes Bank and imposed a withdrawal limit of Rs 50,000 for depositors.
A notification issued by the finance ministry last evening also stayed the "commencement or continuance of all actions and proceedings" against the bank. The withdrawal limits will remain in effect until April 3, 2020.
However, the cap on withdrawals will have a few exemptions and depositors can withdraw money more than the set limit in cases like medical emergency, higher education, marriage and unavoidable emergency. The order of moratorium was issued on recommendations by the Reserve Bank of India (RBI).
The RBI, meanwhile, has issued another notification stating that the board of Yes Bank has been suspended for a period of 30 days "owing to a serious deterioration in the financial position of the Bank". The central bank has superseded the board of the troubled private lender.
SBI board approves investment in Yes Bank
The development came hours after reports that the government has approved a plan for the State Bank of India (SBI), the country's biggest lender, to buy a state in Yes Bank. "This has been done to quickly restore depositors' confidence in the bank, including by putting in place a scheme for reconstruction or amalgamation," the RBI release said.
According to the latest reports, the State Bank of India board has also given "in-principle" approval to invest in the capital-starved Yes Bank. The central board of SBI has informed the exchanges after discussing the matter at a meeting.
"The matter in regard to Yes Bank was discussed at the meeting of the central board of bank on Thursday and an in-principle approval has been given by the board to explore investment opportunity in the bank," the SBI board informed the bourses late in the evening.
'Had no other option left': RBI on Yes Bank moratorium
The central bank said that a steady decline in the bank's financial position was largely due to its inability and that "it had no other alternative" but to issue an application asking the government to take action against the bank.
"The financial position of Yes Bank Ltd. has undergone a steady decline largely due to inability of the bank to raise capital to address potential loan losses and resultant downgrades, triggering invocation of bond covenants by investors, and withdrawal of deposits. The bank has also experienced serious governance issues and practices in the recent years which have led to steady decline of the bank," the release noted.
