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09 March 2020
INVESTMENT

India seizes Yes Bank, limits withdrawals

The move to rescue Yes Bank illustrates the widening damage from India’s shadow banking crisis, which has left the lender with a growing pile of bad loans

Yes Bank had been seeking new capital since 2019, to bolster its ratios and quell questions about its stability/Bloomberg

by Bloomberg

The Reserve Bank of India (RBI) seized control of beleaguered Yes Bank, raising concerns about the knock-on effects on the financial system.

The regulator capped withdrawals at INR 50,000 ($682) and imposed strict limits on operations at the country’s fourth-largest private lender, while a rescue plan is devised.

In a statement, RBI said that it was forced to step in after Yes Bank’s latest effort to raise new capital failed to materialise and as the lender was facing regular outflow of liquidity.

Indian authorities have been struggling to contain the turmoil that has choked credit to consumers and small businesses, slowing economic growth to an 11-year low.

The RBI said that in the absence of a credible revival plan, and in public interest and the interest of the bank’s depositors, the regulator had no alternative but to seize Yes Bank.

The takeover will help authorities implement a revival plan after numerous attempts by the lender to raise capital failed. Under a government-backed proposal State Bank of India, the nation’s largest lender has been appointed to lead a consortium that will inject new capital into Yes Bank.

Yes Bank had been seeking new capital since 2019, to bolster its ratios and quell questions about its stability due to its exposure to shadow banks entangled in a prolonged crunch in the local credit market.

The seizure of Yes Bank is the largest of the government’s moves to stem an erosion of confidence among investors due to the shadow bank crisis. The government took over Leasing & Financial Services in 2018 to reassure creditors after the defaults.

Additionally, in 2019 the central bank seized control of another struggling shadow lender, Dewan Housing Finance Corporation and said it will initiate bankruptcy proceedings.


RELATED STORIES: Yes Bank Reserve Bank of India Dewan Housing Finance Corporation Leasing & Financial Services

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