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Yes Bank Fiasco: What are Its Implications on Yes Bank Customers Research Team | Posted On Friday, March 06,2020, 05:51 PM

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Yes Bank Fiasco: What are Its Implications on Yes Bank Customers



In an unexpected move on 5th March, the RBI imposed moratorium period on the financially troubled Yes Bank. Withdrawals per account have been restricted to Rs. 50,000 per account. The move is taken in accordance with a long period of financial troubles of the bank which has been struggling to raise additional capital. While some debt funds have already written off their yes bank investments, it is likely that more mutual funds are like to follow suit.

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Yes Bank Fiasco: What are Its Implications on Yes Bank Customers

Restrictions Imposed by RBI on Yes Bank:

  • The maximum withdrawal limit per account is capped at Rs. 50,000 until 5th on April 2020
  • The capped amount is placed on all types of accounts in Yes Bank i.e. current, deposits and savings account
  • The Bank cannot decide on their basic banking services that include sanctioning new loans, renew loans, make investments, incur a liability, make an advance and disburse payments.
  • The RBI has also made administrative changes by superseding its board and has named the former CFO of SBI Prashant Kumar as the new administrator.
  • Customers whose primary account is the Yes Bank account are likely to face issues during SIP payments, insurance or loan premium payments if the amount is above Rs. 50,000. Payments within the specified limit will be honoured.
  • Individuals with a salary account in Yes Bank may have to find alternative means of getting access to funds in case they need money immediately which is above the capped amount.
  • Some relaxation is provided to depositors as they can withdraw a higher amount from the bank if they need money for medical treatment of self or dependents, cover cost for higher education, pay expenses for marriage or any other ceremony or in case of an unavoidable emergency.

See Also: Why Yes Bank Shares are Falling?

How The Restrictions Will Hit The Mutual Fund Investors?

Currently, a total of about 32 mutual funds scheme contains allocations to Yes bank debt that stands at an overall exposure value of Rs. 2848 crores. On the equity front, exposure of Yes Bank is mainly in Index funds as it is a part of Nifty 50 bouquet. While some debt funds have already written off their yes bank investments, it is likely that more mutual funds are like to follow suit.

Mutual fund depositors must not panic in such a situation as most of the bonds are AT 1 bond that are specifically designed to reduce losses when the bank capital fall below a certain level. Mutual fund scheme like Nippon India Mutual fund has already written off its entire exposure to Yes Bank. The inflows on this scheme is been capped at Rs. 2 lakh per investor. Other schemes that have large exposure to Yes Bank are Nippon India equity hybrid fund, Nippon India Credit Risk fund and Nippon India Strategic Debt fund.

Here what an investor can do in such a situation:

  • Several mutual funds have denied redemption requests from their scheme into Yes Bank accounts to avoid losses.
  • Mutual fund investors can take active steps and change their mutual fund accounts tied to Yes Bank for uninterrupted redemption of funds and dividend payment.
  • The investors can submit a change account request along with a cancelled cheque at the nearby office of CAMS to change their accounts.
  • Investors wanting to Exit from mutual fund schemes having exposure to Yes Bank debt or equity must wait for the further announcements.
  • People considering reviewing their investment portfolios must consider factors like capital erosion and adjust their savings and investment plans accordingly.

See Also: Analysis: What Went Wrong For Yes Bank in Q4?

What’s Ahead for Yes Bank Depositors?

The RBI has reassured the depositors and investors that there is no reason to panic as it is monitoring the situation and the current imposition is announced to safeguard the interest of the depositors. The RBI is likely to chalk a scheme to recover the bank either through reconstruction or amalgamation of the bank. The Bank can also process salaries to employees. However, the bank’s customer may face issues for NEFT/RTGS or Debit/Credit card transactions. If the RBIs plan works successfully, this may be the first instance of a private sector bank being bailed out using public money.

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