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Govt asks RBI to submit assessment report on Yes Bank

All deposits with Yes Bank will continue in the same manner and with the same terms and conditions, (Photo: Ramesh Pathania/Mint)Premium
All deposits with Yes Bank will continue in the same manner and with the same terms and conditions, (Photo: Ramesh Pathania/Mint)

  • RBI has imposed a moratorium on Yes Bank till 3 April and capped withdrawals at 50,000 per person across accounts
  • Under an RBI-supervised reconstruction plan, SBI is likely to acquire up to 49% stake in the private sector lender

Finance Minister Sitharaman Nirmala Sitharaman on Friday said the Reserve Bank of India (RBI) has been asked to report on the irregularities at the cash-strapped Yes Bank and the role of its leadership indicating a probe is on the way. The minister also assured that the employees’ salaries will be protected for a year.

The government has asked the banking regulator to ensure due process of law happens with a ‘sense of urgency’, Sitharaman told reporters.

“I have asked the RBI to assess what has caused difficulties for Yes Bank. I have asked them to assess where cause of the problem lies and also clearly identify the role played by various individuals in creating the problem and not so comprehensively addressing the problem," the minister said, while hinting at the role of bank’s senior leadership, without taking any particular official's name.

“I have also asked the RBI to tell me about adequacy of the extent of regulatory, supervisory norms. Our government is completely committed to ensure that the depositors’ interest is safeguarded. I want RBI to ensure that the due process of law is set to roll with a sense of urgency, so that we find out who led to the problem of this size and magnitude in the Yes Bank," she said.

In a series of developments late on Thursday, the central bank imposed a moratorium on the private sector lender till 3 April and also capped withdrawals from the bank at 50,000 per person across all accounts combined till further orders, as the central bank tries to stitch together a bailout plan for the troubled lender that was once the country’s fourth largest by assets.

The crisis at Yes Bank and the series of steps taken by the government and the banking regulator is emblematic of the poor governance practices in the country's banking and the shadow banking sector. Punjab and Maharashtra Co-operative (PMC) Bank, Dewan Housing and Finance Corp (DHFL) faced a similar fate, with the central bank taking control of the board, less than a year ago.

The finance minister said that the government has been monitoring banking and shadow banking institutions on a day-to-day basis for the last six months, and 'will not let institution fall off the cliff'.

On Friday, the central bank announced a draft scheme ‘Yes Bank Ltd Reconstruction Scheme, 2020’, in which it said strategic investor bank will have to pick up 49% stake in Yes Bank and it cannot reduce holding to below 26% before three years from the date of capital infusion. While State Bank of India (SBI) has expressed willingness to invest in crisis-ridden lender, sources told Mint that multiple investors have shown interest in investing in the bank.

The minister said that the scheme will be effective within the period of the moratorium. “In 30 days, we expect the scheme to come into play," Sitharaman said, adding that deposits and liabilities will continue unaffected as before.

According to the minister, the problem with the beleaguered lender is not fresh matter and the government, along with the regulator has been continuously monitored the situation. Since then series of measures have been taken, which includes, bringing in a new chief executive officer in 2018, investigation by central bureau of investigation (CBI) and markets regulator, appointment of former deputy RBI Governor on the bank’s board, along with levying fines due to non-compliance.

“The culture was of weak compliance and there was wrong asset classification, together with risky credit decision. Since RBI started getting clear indications on all these grounds, they clearly took some concrete steps which we have been informed about" the finance minister explained.

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