‘NO’ withdrawals above Rs.50K for ‘YES Bank’ depositors
Account-holders of cash-strapped Yes Bank have been hit hard below the belt after the Reserve Bank of India (RBI) on Thursday placed it under a month-long moratorium – capping depositor withdrawals (even if they have multiple accounts) to Rs 50,000. The moratorium has been imposed under Section 45 of the Banking Regulation Act, 1949 and will be effective till April 13.
This is for the first time that a large private bank has been placed under such restrictions and definitely rings a warning bell for its investors. Secondly, the sudden block on the cash just days before the festival season and when the wedding season is at its peak, the news of capping limit has already initiated a panic-like situation among its depositors. The investors have no clarity on issues like the status of fundraising, whether the bank would continue to function in the future and more worried than ever for not being able to move their money to other banks. The depositors are bound to suffer until there is no clarity on grounds of a business merger or investment scenario.
For many depositors, RBI’s decision is like the end of the road as the bank will neither be granting nor renewing any loan or advance. The bank cannot make any investments, nor incur any liabilities or disburse any payments either.
Not only has this, the bank’s Payments application, PhonePe, that channels UPI transactions through YES Bank, too suffered an outage within hours.
Taking note of the current situation, PhonePe’s CEO Sameer Nigam tweeted on Friday early morning was, “Dear PhonePe Customers. We sincerely regret the long outage. Out partner bank (Yes Bank) was placed under moratorium by RBI. The entire team's been working all night to get services back up asap. We hope to be live in a few hours. Thanks for your patience. Stay tuned for updates.”
As the news spread among the bank’s depositors, they started lining up outside ATMs to withdraw cash. People waited for hours for their turn and in fact, many returned home dejected when the ATMs dried out.
Financial experts are of the view that the bank's collapse can have a domino effect on interlinked financial institutions and impair growth for the banking sector. According to them, the capping is just a short-term breather and the bank has also hit the end of the road.
The bank started from scratch in 2004 and within no time it became India's fifth-largest private sector lender with an asset value of over Rs 3 lakh crore. But its trouble started when the economic cycle turned worse and there were surprises one after another in the last two years.
In the past year, the bank’s share value eroded more than 80% and after the RBI’s decision the bank’s shares crashed 85% of its value to trade at Rs 5.65 on Friday morning in contrast to the stock that closed at Rs 36.80 the day before.
This is not the first time that RBI has taken such a step. The last lender to be placed under a similar action was PMC Bank in September last year and the decision primarily affected the small-time depositors, farmers and those in rural areas.