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RBI to lend liquidity support to Yes Bank if needed: Das

FE Bureau
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Asserting that the reconstruction plan underway for Yes Bank is credible and sustainable and deposits in the beleaguered bank are safe, the Reserve Bank of India (RBI) on Monday pledged to extend it a line of liquidity support, if required. Governor Shaktikanta Das also asked state governments to be confident of India's private sector scheduled commercial banks as much they are in the public sector banks (PSBs), in the wake of a tendency among some of them to withdraw deposits from private banks that are perceived to be weak.

Asked whether the prompt corrective action (PCA) mechanism would be invoked against the bank, the RBI governor replied in the negative, citing the `10,000-crore investment in the bank that has already bolstered its capital base. The bank's gross NPAs shot up to 18.87% at the end of December quarter from 7.39% as of September 2019. Net NPAs stood at 5.97% against 4.35% as of September 2019.

"There has been capital infusion of `10,000 crore in Yes Bank. It is adequate and ensures compliance with regulatory requirements like the net NPA and capital adequacy," the governor said. Das also said Yes Bank would retain its private-sector character. Asked about the fate of additional tier-1 (AT-1) bond holders of the bank, the governor said the lender had already clarified it. This means any potential relief from RBI for these bondholders is unlikely now, as the beleaguered bank has said it will write down AT-1 bonds worth `8,415 crore issued by it earlier.

RBI's draft "reconstruction" plan earlier this month had suggested a permanent write-down of the additional Tier-1 capital, saying that it was in "conformity with the extant regulations issued by RBI, based on the Basel framework". The move, however, prompted such bondholders to initiate legal action. Government sources in New Delhi earlier told FE that a 90-day RBI credit could be provided at an interest rate of 8.4% to enable Yes Bank to cater for immediate liquidity requirements. One of the likely conditions for the loan would be that the bank can't use this special liquidity to invest in non-SLR securities, the source had added.

In addition to State Bank of India, which is putting in `7,250 crore in Yes Bank to pick up a 49% stake, some private banks, including ICICI Bank (`1,000 crore), Axis Bank (`600 crore) and Kotak Mahindra Bank (`500 crore) - and HDFC (`1,000 crore) have pledged to invest in it. LIC, too, may invest. Federal Bank and Bandhan Bank are to invest `300 crore each in Yes Bank, while IDFC First will invest `250 crore.  Auditor had flagged off risk of PCA being invoked by the regulator in the wake of December quarter results of Yes Bank - key ratio of common equity tier-1 (CET1) capital stood at an abysmal 0.6%. The bank on Saturday reported a massive loss of `18,564 crore in the December quarter, a record for any bank, as a sharp jump in bad loans forced it to make huge provisioning.

The bank had reported a profit of `1,002 crore a year earlier and a loss of `629 crore at the end of the September quarter. The governor also said Yes Bank's new board would assume its position and the office of the administrator will cease to exist on March 26, 2020. Separately, the government announced that current administrator Prashant Kumar will be the new MD & CEO of Yes Bank and former Punjab National Bank (PNB) chairman Sunil Mehta will be the non-executive chairman of the reconstructed entity. The governor said in a press conference that Yes Bank's identity will be retained as a private sector entity.

Das said the regulator's action against Yes Bank was swift and timely. "It is perhaps a record of sorts," he said. "Let me assure that in the past 6-8 months, the situation in Yes Bank was monitored almost every day. And we decided to act when we thought it was appropriate," Das added.

The government on Saturday notified the reconstruction plan for Yes Bank and said the moratorium will be lifted by 18.00 hrs on March 18, much earlier than the earlier date of April 3. "The order of moratorium on the reconstructed bank issued by the government… shall cease to have effect on the third working day at 18:00 hours from the date of commencement of this scheme," the notification said.