Cash Bank

Yes Bank crisis: Cap on withdrawals may be lifted by 23 March

The withdrawal cap of ₹50,000 on Yes Bank deposits may be lifted by 23 March, at least 11 days ahead of the 3 April deadline set by the central bank, two people familiar with the development said.

“With State Bank of India (SBI) running the bank, concerns over liquidity and viability of Yes Bank as a going concern have receded. Placing caps on withdrawals can be counter-productive. The RBI feels the limit can be withdrawn earlier and that should happen by 23 March,” one of the two people cited above said on condition of anonymity.

The ₹50,000 cap is the aggregate limit across all accounts—savings, term or current—that the Reserve Bank of India (RBI) placed on Yes Bank customers on 5 March when it put the private lender under a moratorium. It subsequently asked SBI to take a 49% stake in the bank co-founded by Rana Kapoor to ward off its collapse that would have impacted the broader financial system.

“The RBI was internally targeting 16 March to remove the cap on withdrawals. But it had not factored in certain events. In the event of holders of the bank’s additional tier 1 (AT1) instruments going to the Supreme Court (SC) which is a high probability, the 16 March aim may get pushed off by a week,” the second of the two people mentioned above said.

This person said the central bank could lift the cap in one go by 16 March, or else do it in stages, doubling the cap first to ₹1,00,000 and lift it fully by 23 March.

Yes Bank appears to have sold AT1 bonds as fixed deposit products to mutual funds and pensioners, when they are a riskier product. According to Basel III norms, AT1 capital of a bank can be reduced to zero, something the RBI did with Yes Bank when it announced its 5 March moratorium decision.

Yes Bank’s AT1 capital is expected to be between ₹2,500 crore and ₹3,600 crore, all now reduced to junk. It is now being clear that AT1 bonds are quasi-equity instruments, and yields on them are now expected to surge.

Under Reserve Bank’s ‘Yes Bank Ltd Reconstruction Scheme, 2020’, SBI will take up to 49% stake at ₹10 per share. SBI chairman Rajnish Kumar said on Saturday that the state-run bank had interest from up to 23 investors to pick up stake in Yes Bank.

SBI has so far committed to invest up to ₹10,000 crore in Yes Bank, and the Reserve Bank, too, is said to be working on a special liquidity window of a similar amount for it, reported.

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