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What is the Government Yes Bank Rescue Plan? Research Team | Posted On Tuesday, March 17,2020, 12:36 PM

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What is the Government Yes Bank Rescue Plan?



What is the Government Yes Bank Rescue Plan?

RBI has superseded the board of Yes Bank and taken charge of it. This is a very rare incident where the Government was forced to intervene because of management issues. Why did RBI take over Yes Bank management?

  • Yes Bank was making losses in the last four quarters.
  • There were serious governance issues.
  • There was no concrete proposal to attract investors to survive and grow.
  • The bank lost a lot of depositors who are the bread and butter of any bank.

In all this Yes Bank posted a record Rs 18,564 crore loss for the December quarter with record NPAs over Rs 40,000 Crores. Why did Yes Bank collapse? Well, bad loans for one. Yes Bank struggled to raise $1 Billion in fresh capital last year. Another reason was the slowing economic growth to a 11-year low. There was a distinct divergence between the bank financials (The reported ones) and RBI findings. So, the RBI intervened and took over the bank.

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See Also: Yes Bank Fiasco: What are Its Implications on Yes Bank Customers?

What is the Government Yes Bank Rescue Plan?

Yes Bank collapses

The RBI superseded the Yes Bank board and capped the withdrawal limit at Rs 50,000. A moratorium of a month was imposed to arrive at a credible restructuring plan. The RBI assured depositors that their money was safe and there was no need to panic. Still, there were several lines in front of the Yes Bank as people struggled to get money.

Relaxation was made in case of emergency like higher education and marriage with limits capped at Rs 5 Lakh. Worse, the Yes Bank crisis meant UPI use nosedived 40%. The PhonePe lines went dead as they were plugged to Yes Bank.

SBI saves Yes Bank

SBI stepped in to save Yes Bank. It submitted a rescue plan for a maximum investment of Rs 6,000 Crores for a 26% stake. SBI would also rope in a number of investors to save Yes Bank. Global investors would pump in Rs 5,000 Crores and RBI would extend a liquidity lifeline of Rs 8,000-10,000 Crores. This was a week ago.

So what has happened today? Well Yes Bank has allotted 1,000 crore equity shares to 7 private banks for a total sum of Rs 10,000 Crores. SBI committed a massive Rs 7,250 Crores, ICICI Bank and HDFC committed Rs 1,000 Crores each, Axis Bank and Kotak Mahindra Bank committed Rs 600 Crores and Rs 500 Crores respectively. Federal Bank and Bandhan Bank committed Rs 300 Crores each and IDFC First Bank committed Rs 250 Crores. Investments by private banks reached Rs 3,950 Crores. LIC too will make a contribution to acquire stake in Yes Bank. SBI will have 49% stake in Yes Bank.

Good news for Yes Bank customers

Yes Bank will resume full banking services on March 18th.  You and other Yes Bank customers can enjoy full banking services from March 19th. Yes Bank states that full banking operations would be resumed from 6 PM.

Yes Bank shareholders

The Yes Bank shareholders got a rude shock when the Government late on Friday imposed a 3-year lock in. The Government imposed a 3 year lock-in on people holding 100 shares or more up to 75% of the total investment. This move is unprecedented and may have legal implications. This may be good for long-term shareholders as equity does well over the long term.

See Also: Why Yes Bank Shares are Falling?

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