By Friday evening, the RBI said that the State Bank of India (SBI) will own 49 per cent of Yes Bank’s shareholding for its revival. So what does the big restructuring move mean for Yes Bank’s depositors?
- There will be no change in any conditions related to a home loan, personal loan or car loan or credit card dues of customers. They will have to continue making EMI payments as per existing terms. Also, all depositors can expect interest to grow on their deposits as per current interest rates.
- All schemes, contracts, deeds, bonds, agreements, powers of attorney, grants of legal representation and other instruments shall be effective to the extent and in the same manner. This means all legal contracts related to Yes Bank won’t be affected by the ongoing crisis.
- No account holder will receive any compensation from Yes Bank on account of changes due to the scheme. Any changes in interest charges or rates, credit card rebranding or change of terms, home loan change of terms, etc won’t be liable for compensation.
- The scheme will not impact any action, suit, appeal or any proceeding of whatever nature pending. Recovery certificate obtained by or against Yes Bank will also not be affected.
- Branches and offices will function in the same manner and the same places. RBI might open new offices or branches.
WHO WILL RUN YES BANK?
RBI said that a new board of directors would be appointed. It also said that the office of the Administrator of Yes Bank Ltd. appointed by the Reserve Bank will be vacated once the new Board takes charge.
The new board of directors will include a CEO who would also be the Managing Director. Other Board of Directors would be a Non-Executive Chairman and two Non-Executive Directors.
WHAT LED TO THE CRASH
The financial position of Yes Bank has undergone a steady decline over the last few years because of its inability to raise capital to address potential loan losses and resultant downgrades, triggering invocation of bond covenants by investors, and withdrawal of deposits. The bank was making losses and inadequate profits in the last four quarters.
The bank has also experienced serious governance issues and practices in recent years which have led to a steady decline of the bank. Take, for instance, the bank under-reported NPAs to the tune of Rs 3,277 crore in 2018-19. That was prompted RBI to dispatch R Gandhi, a former Deputy Governor, to the board of the bank.
The bank was engaged with a few private equity firms for exploring opportunities to infuse capital as per the filing in stock exchange in February this year. RBI says since a bank and market-led revival is a preferred option over a regulatory restructuring, it made all efforts to facilitate such a process and gave an adequate opportunity to the bank’s management to draw up a credible revival plan, which did not materialise
The bank was facing regular outflow of liquidity. It means that the bank was witnessing withdrawal of deposits from customers. In fact, the deposits are bread and butter of a bank. The bank had the deposit book of Rs 2.09 lakh crore at the end of September 2019.