A day after the Yes Bank was forced to postpone and restrict withdrawals, the RBI on Friday evening released a draft reconstruction plan for the private sector lender, saying SBI " has expressed its willingness" to invest.
As of Friday evening, the Reserve Bank of India said that the Reserve Bank of India (SBI) would own a 49% stake in Yes Bank for its revival. So what does the big restructuring step mean for yes bank depositors?
There will be no change in any situation related to the home loan, personal loan or car loan or the credit card of customers. They will have to continue EMI payments as per the existing conditions. Also, all depositors can expect to increase the interest on their deposits according to the prevailing interest rates.
All plans, contracts, deeds, bonds, agreements, powers of attorney, grants of legal representation and other instruments will be useful to the same extent and in the same manner. This means that not all legal contracts related to Yes Bank will be affected by the current crisis.
No account holder will get any compensation from Yes Bank due to changes due to the scheme. No change in interest charges or rates, credit card rebranding or variation in terms, change in home loan terms etc. will not be liable for compensation.
The plan will not affect any action, suit, appeal, or whatever nature is pending. The recovery certificate obtained by or against Yes Bank will also not be affected.
Branches and offices will work in the same way and the same place. RBI can open new offices or departments.
Who will do run a bank?
RBI said that a new board of directors would be appointed. It has also been mentioned that the office of the Administrator of Yes Bank Limited named by the Reserve Bank will be vacated after taking over the charge of the new bank.
The new board of directors will include a CEO who will also be the managing director. The other board of directors will be one non-executive chairman and two non-executive directors.
What is LED for crash
Yes Bank's financial position has steadily declined over the years due to its inability to raise capital to overcome potential debt losses and the resulting decline, triggering investors' call to bond covenants, and withdrawal of deposits. The bank had been making losses and insufficient profits in the last four quarters.
The bank has also experienced severe governance issues and practices in recent years, which have led to the bank's continued decline. For example, the bank reported an NPA of Rs 3,277 crore in 2018-19. This prompted the RBI to send R Gandhi, a former deputy governor, to the bank's board.
The bank had tied up with some private equity firms to find opportunities to infect capital, as per a filing in the stock exchange in February this year. RBI says that a bank and market-led revival is a preferred option over a regulatory restructuring, it made all efforts to facilitate such a process and gave the bank's management ample opportunity to formulate a credible revival plan, Which to no avail.
The bank was facing regular outflows of liquidity. This means that the bank was watching the withdrawal of deposits from customers. In fact, deposits are the bread and butter of the bank. At the end of September 2019, the bank had a deposit book of Rs 2.09 lakh crore.