What Government Curbs Mean For Yes Bank Depositors

The government placed Yes Bank Ltd. under moratorium and capped withdrawals by customers of the private sector lender for a month citing its poor financial condition.

Depositors will not be allowed to withdraw more than Rs 50,000 from the bank without written permission from the Reserve Bank of India during the period of the moratorium which ends on April 3, according to a finance ministry statement. The restriction on withdrawals is irrespective of the number of accounts any customer may have in the bank.

If the depositor has dues payable to the bank, those will be adjusted first before withdrawal of any amount.

When Can Depositors Withdraw More?

The RBI may permit a Yes Bank depositor to withdraw up to Rs 5 lakh under certain emergency conditions. These circumstances include:

• medical treatment of the depositor or any person actually dependent on them;
• towards the cost of higher education of the depositor or any person actually dependent on him for education in India or outside India;
• to pay obligatory expenses in connection with marriage or other ceremonies of the depositor or his children or of any other person actually dependent upon him;
• in connection with any other unavoidable emergency.

The restriction does not apply on any drafts or pay orders issued by Yes Bank and unpaid on March 5.

The Ministry of Finance took the decision of capping withdrawals after considering an application by the RBI. It's the first instance of a large private bank being put under such a moratorium by the government.

Former Economic Affairs Secretary CM Vasudev said depositors should not panic as their money would be “quite safe”. “It is only that for some time they will have to bear with the system and the moratorium will do that job.”

What Yes Bank Can And Can't Do?

Yes Bank has been prohibited from making any loans, investments, payments, or transfer any properties, said another RBI statement.

The private lender, however, can pay bills already received, employee salaries, rent and taxes.

What's The Way Forward?

The regulator and government should now ensure that they get the bank's operations up and running as soon as possible, according to Abizer Diwanji, partner at EY India. “There is a larger need to save the deposit base. And one should instill more and more confidence in them about the revival ability of the bank,” Diwanji said.

Former Deputy Governor of RBI, HR Khan, agreed. “It is quite a large bank with balance sheet size of more than Rs 4 lakh crore so the RBI has acted. Probably in the next one month they will see what the scheme of reconstitution could be. The depositors' and public interest must be the uppermost in their mind.”