The Reserve Bank of India (RBI) on Thursday placed Yes Bank under Moratorium due to decline in the private lender's financial position.
The moratorium period will end in 30 days starting 5 March.
As per RBI's directive to the Bank under Section 35A of the Banking Regulation Act, 1949, from 8 pm of 5 March 2020, the lender cannot grant or renew any loan or advance, make any investment, incur any liability or agree to disburse any payment, exceeding the limits set by the regulator.
The bank cannot pay depositors more than Rs 50,000 during the moratorium period, as per a notification issued by the Ministry of Finance.
"The financial position of Yes Bank Ltd. (the bank) has undergone a steady decline largely due to inability of the bank to raise capital to address potential loan losses and resultant downgrades, triggering invocation of bond covenants by investors, and withdrawal of deposits. The bank has also experienced serious governance issues and practices in the recent years which have led to steady decline of the bank," RBI said in a statement.
Addressing the discrepancies, the central bank further said, "the Reserve Bank came to the conclusion that in the absence of a credible revival plan, and in public interest and the interest of the bank's depositors, it had no alternative but to apply to the Central Government for imposing a moratorium under section 45 of the Banking Regulation Act, 1949. Accordingly, the Central Government has imposed moratorium effective from today."
RBI said that it "assures the depositors of the bank that their interest will be fully protected and there is no need to panic."
"In terms of the provisions of the Banking Regulation Act, the Reserve Bank will explore and draw up a scheme in the next few days for the bank's reconstruction or amalgamation and with the approval of the Central Government, put the same in place well before the period of moratorium of thirty days ends so that the depositors are not put to hardship for a long period of time," it added.
Further, in a separate statement, RBI said that it has superseded the Board of Directors of Yes Bank Ltd. for a period of 30 days "owing to serious deterioration in the financial position of the Bank."
"This has been done to quickly restore depositors' confidence in the bank, including by putting in place a scheme for reconstruction or amalgamation. Shri Prashant Kumar, ex-DMD and CFO of State Bank of India has been appointed as the administrator under Section 36ACA (2) of the Act," it said.