Yes Bank Crisis: Impact On EMIs, Business Loan Repayment And More

With the Reserve Bank of India imposing a Rs 50,000 withdrawal limit on account holders and depositors of Yes Bank Ltd., there's confusion over loan repayments.

Yes Bank's outstanding advances stood at Rs 2.24 lakh crore as of Sept. 30. Will the bank allow electronic mandates for loan repayments or equated monthly instalments if they exceed Rs 50,000 or will the withdrawal limit apply?

BloombergQuint spoke with senior bankers to get a sense of what happens:

Home Loan EMIs

According to the head of retail and small business lending at a large private bank, loan repayments for retail customers are unlikely to get impacted by the limitations placed by the RBI. Typically, in situations where banks are faced with a moratorium, the borrowers can still make loan repayments through electronic mandates since it is not a personal withdrawal.

Otherwise, banks might see a spike in retail bad loans, which could be detrimental to the system, the private banker said.

Typically, payment gateways have different paths for cash withdrawals, fund transfers to other bank accounts and repayment of loans. This can be used to ensure that while withdrawals are blocked, repayments are not, the banker explained.

MSME Loan Repayments

Loans to micro, small and medium enterprises might work differently compared with mortgages. Since small businesses depend on working capital limits which are drawn down over time, MSME borrowers might face some trouble in using their limits, a senior public sector banker said speaking on the condition of anonymity.

As part of its restrictions on Yes Bank, the RBI has also blocked the bank from issuing any fresh credit or renewing any loans it may have extended.

The RBI statement said that Yes Bank can make payments towards bills already received, employee salaries, rent and taxes. But Yes Bank being a large private bank has a number of inter-linkages with the payment system. Already, RazorPay and PhonePe have highlighted service disruptions.

MSMEs with accounts in Yes Bank will also struggle to make payments for goods and services tax and other taxes, since this is the end of the financial year. As MSMEs typically work with just one bank, they might find it difficult to ensure that their statutory dues are cleared in time, a senior foreign banker said on the condition of anonymity.

Impact On Money Markets

The foreign banker quoted above said the banking system is likely to see no impact on the spot foreign exchange transactions, repo transactions or those involving government securities since these are all guaranteed by the Clearing Corporation of India Ltd.

Issues might crop up in the swaps market since rating agencies will downgrade Yes Bank after the RBI's actions. That will be counted as a credit event by the International Swaps & Derivatives Association.

While large companies are unlikely to face trouble in their foreign exchange operations, SMEs and other smaller companies dependent on Yes Bank are likely to face some issues, the foreign banker said.

Opportunity For Rivals

Restrictions on lending and deposit withdrawals on a large large private bank could give other banks an opportunity to expand

According to the senior public sector banker quoted above, well-rated borrowers could look at moving out of Yes Bank and approach other lenders in the system for their needs. This could lead to some benefits on loan disbursal for other banks.

However, in case of smaller borrowers or those who are low rated, banks might not be keen on taking on fresh exposure. This would mean that these borrowers are unable to receive credit from any major lender, increasing the chances of a default, the banker explained.

According to Ashish Gupta of Credit Suisse, the situation at Yes Bank creates an unnerving precedent and uncertainty for deposit holders and debt providers. This is likely to impact deposit flows to other small and mid-sized private banks in the country, Gupta said in his report on Friday. The interruptions in flow of liquidity will further affect India's credit crunch, since private banks have been driving most of the incremental credit growth in the country.

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