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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See Also: Why Yes Bank Shares are Falling?
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:
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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