Crisis! RBI places Yes Bank on moratorium, customers panic

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New Delhi: The Reserve Bank of India (RBI) superseded the board of Yes Bank NSE -54.89 % and imposed a month-long moratorium, an announcement late on Thursday said.

The RBI on Thursday capped deposit withdrawals at Rs 50,000 per account for a month for customers.

Frantic Yes Bank depositors lined up outside ATMs across the country hours after the private bank was placed under a moratorium by the RBI.

Yes Bank depositors rushed to ATMs to withdraw cash but faced a multitude of problems including closed down machines and long queues after the RBI placed the bank under a moratorium.

In Mumbai, the situation escalated to such an extent that the Mumbai Police control room had to send SOS alerts to check on Yes Bank ATMs across the city to control the law and order situation.

Digital payment firm PhonePe suffered an outage in services after its banking partner YES Bank’s moratorium notice by RBI came in effect on Thursday.

Sameer Nigam, PhonePe’s co-founder and CEO, on Friday confirmed the outage through a tweet informing that their entire team has been working on it and thanked customers for their patience.

The move, which went effective from 6 pm on Thursday led to a halt in United Payments Interface (UPI) transactions. With PhonePe being the largest payments partner of YES Bank was among the worst affected.

Apart from restricting the withdrawal limit, the apex bank also appointed ex-SBI CFO Prashant Kumar to oversee the moratorium period.

Yes Bank has been at the forefront of creating a fintech ecosystem in the country, enabling startups through YES Fintech initiatives. It also recently launched multiple API banking services to help startups.

India’s stock and currency markets tumbled after the central bank seized control of beleaguered Yes Bank Ltd., raising concerns about the knock-on effects on the financial system.

Yes Bank shares fell as much as 25% on Friday morning in Mumbai, with the Bankex index dropping more than 5%. The rupee fell more than 1%, approaching a record low reached in October 2018. The S&P BSE Sensex index of shares lost as much as 3.8%.

The seizure of Yes Bank is largest of the government moves to stem an erosion of confidence among investors due to the shadow bank crisis. The government took over IL&FS in 2018 in an effort to reassure creditors after the defaults. And last year, the RBI seized control of another struggling shadow lender, Dewan Housing Finance Corp., and said it will initiate bankruptcy proceedings.

Yes Bank, India’s fifth largest private sector lender, is in the middle of a crisis as the Reserve Bank of India (RBI) has taken over its affairs and placed strict limits on its operations. The RBI is also devising a rescue plan for the bank.

Yes Bank’s financial position has been undergoing a steady decline largely due to its inability to raise capital. The bank has also experienced serious governance issues and practices in recent years, leading to a steady decline.

It has been trying to raise $2 billion in fresh capital since late last year, and in February delayed its December-quarter results.

Yes Bank had been seeking new capital since last year, 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 that erupted with a series of defaults at Infrastructure Leasing & Financial Services (IL&FS) Limited in September 2018.

The RBI has now selected State Bank of India (SBI), the nation’s largest lender, to lead a consortium that will inject new capital into Yes Bank, people familiar with the matter said earlier on Thursday. The SBI had been authorised to pick other members of the consortium in the plan approved by the government.

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