The government has effected moratorium on YES Bank from March 5 to April 3 on the recommendation of Reserve Bank of India (RBI). The order came into effect from 6 pm today. The private lender will not pay depositors more than Rs 50,000 during the moratorium period, irrespective of the number of accounts with the bank.

The RBI has superseded the board of YES Bank with immediate effect and has appointed former SBI chief financial officer Prashant Kumar as administrator for YES Bank.

"In exercise of the powers conferred under 36ACA of the Banking Regulation Act 1949, the Reserve Bank has in consultation with Central Government, superseded the Board of Directors of Yes Bank Ltd for a period of 30 days owing to a serious deterioration in the financial position of the Bank. This has been done to quickly restore depositors' confidence in the bank, including by putting in place a scheme for reconstruction or amalgamation. Shri Prashant Kumar, ex-DMD and CFO of State Bank of India has been appointed as the administrator under Section 36ACA (2) of the Act," RBI said in a late evening statement.

The RBI has clarified that the restriction on withdrawal is subject to conditions and it can be a general or special order permit the bank to allow withdrawal of over Rs 50,000.

The central bank said that in case of unforeseen circumstances, like medical treatment of depositors or those dependent on him/her, it can allow for a higher withdrawal. It further said that YES Bank customers can withdraw in excess of Rs 50,000 towards the cost of higher education of the depositor or any person actually dependent on him/her in India or abroad.

Another clause where a customer can withdraw a higher amount is to pay obligatory expenses in connection with marriage or other ceremonies of the depositor or his children or of any other person actually dependent upon him. The same is applicable to those with other unavoidable emergencies.

In a related development, SBI in a statement to exchanges said that an in-principle approval has been granted by the board to explore investment opportunity in YES Bank.

The Mumbai-based bank has been grappling with mounting bad loans. Earlier in the day, sources said SBI along with some other financial institutions would bail out capital-starved Yes Bank, with the government giving the go-ahead.

Earlier, reports said that an SBI-LIC consortium would likely appoint a new managing director and get board control at the bank. The move may have been necessitated by the government and RBI's lack of confidence in whether YES Bank will manage to attract external investors on its own before its self-imposed March 14 deadline. It has also delayed the announcement of December 2019 quarter results due to the ongoing crisis.

Ashvin Parekh of Ashvin Parekh Advisory Services said, "This is an important notification because I suppose this is a precursor to any particular let us say moratorium action that the regulator may then conduct. It is important that there is no run on the bank and that some amount of stability is provided to the institution for the time being. So this is a very commendable and bold step at the moment.”

DK Mittal, former banking secretary said, "Moratorium order is a step in the direction of merging YES Bank with some other bank. Neither government nor regulator can allow such a large bank to fail. So there is hardly any choice left to the government except to follow this route."

First Published:Mar 5, 2020 8:54 PM IST