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Yes Bank faces a huge crisis with RBI putting cap on the cash withdrawal of Rs. 50,000 due to scarce capital and its shares plunging down 85 percent by evening.
Yes Bank Ltd did what many felt it couldn’t do until around 6 pm on Thursday: escape lending limits usually imposed by the central bank on capital-less banks due to declining asset quality and capital buffers.
Known as a prompt corrective action (PCA), such action entails curbs on high-risk lending, setting aside more money on provisions and restrictions on management salary. For Yes Bank, however, it was a straight dive into an RBI-imposed moratorium using its powers under section 45 of the Banking Regulations Act and superseding the board on Thursday.
“Whilst Yes Bank did not break the thresholds, there were signs of stress. As we understand it, PCA criteria are also pre-emptive so it could have been used earlier, “an analyst said, asking for anonymity, adding if RBI did any internal evaluation and found some discrepancy in the numbers of Yes Bank is the guess of anyone.
“Thus, if financials appeared rosier than actuals, a PCA could not have rescued the bank as a moratorium.” At the end of September, Yes Bank’s tier I capital adequacy ratio stood at 11.5 percent compared to the regulatory requirement of 8.875 percent. Its common equity tier 1 capital ratio stood at 8.7 percent, slightly above the regulatory requirement of 7.375 percent.
It has also emerged that Ravneet Gill, former Yes Bank chief executive, took foreign investor Tilden Park Capital Management LP to the RBI office on Wednesday evening to seek approval for an investment in the bank, according to one person familiar with the matter.
Source- Business Standard
“RBI told the investor the next day to put $500 million into an escrow account before it gives the investment a go-ahead. Even as Tilden Park fulfilled its promise, RBI decided to move forward and replace the board, which unexpectedly caught the senior management of Yes Bank, “added the individual.
An official at State Bank of India (SBI) said talks on the rescue plan for Yes Bank Crisis had been going on for at least two months.
The condition in Yes Bank Crisis case was possibly dire, according to Ananth Narayan, professor, SP Jain Institute of Management and Research and a former banker. “There is a chance that with proper recognition and provisioning of asset quality, the bank’s true net worth would by some way have exceeded minimum regulatory thresholds. With no buyers bringing in fresh funds, there was little to shore up the capital given all the efforts.’
Narayan said this might have caused downgrades in ratings, infringed bond deals, and possibly contributed to a run on deposits from the bank. Having said that, RBI possibly had no choice but to suggest a banking moratorium, he said, as the last resort.
Meanwhile, two people who were aware of the negotiations said that foreign investors who had been discussing Yes Bank investments earlier needed more time because the six-week time allowed was not enough given the complexity of the situation.
“They also required some dispensation on the pricing or taxes from the regulators. Since the RBI gave them no clear answers, they decided to walk away, said one of the two people cited above.
Nirmala Sitharaman said on Friday that over the last six months the finance ministry and the RBI have been tracking the banking sector on a daily basis. He went on to explain how the regulator took small measures to clean up the bank that took undue exposure to some troubled companies. She said the promoter-head executive of the bank, Rana Kapoor, was forced to leave in September 2018, and then a former RBI deputy governor was appointed to their board.
