YES BANK LTD. RECONSTRUCTION SCHEME, 2020: BY SALIL KUMAR TRIPATHY

I.              Background

One of the prominent private banks of India is the Yes Bank Limited. It undertakes the function of banking business as it is a company registered under the Companies Act, 1956.[1] However, it was observed that the Yes Bank’s financial position was eventually becoming critically deplorable.

This was examined on the parameters of insufficient levels of capital and liquidity. Also, the Reserve Bank of India noted that there was a lack of any credible plans for infusion by the capital deprived private bank and took the cognisance in the interest of depositors and the larger public good. Therefore, the Central Government released the moratorium order by a notification dated March 5, 2020.[2]

The Banking Regulation Act, 1949 stipulated that the Reserve Bank of India may consider the scheme of reconstruction of the said banking company during the moratorium period.[3] This is done to safeguard the interests of the depositors and for sustaining the management of the banking company. Hence, the scheme is called ‘Yes Bank Ltd. Reconstruction Scheme, 2020’.[4]

II.            Salient features

·       The capital of Yes Bank to be expanded to Rs 5,000 crore and reduction in the equity shares to only 2,400 crores with the face value of Rs 2.

·       The bank investing in the scheme be entitled to 49% of stakes in the reconstructed bank. However, it has been stipulated that the investor bank must enter a mandatory 3-year lock-in period for such investment and maintain 26% of holding during this period.

·       There have been no modifications mandated in the rights and liabilities of the reconstructed company. However, in the constitution of the board, it has been proposed that the investment bank can appoint two nominee directors and RBI given the liberty to add additional directors to the boards.

·       The Yes Bank employee remuneration and services terms were retained as it were under the scheme. However, there was no room kept available for any claims by an account holder for compensation against the reconstructed bank.

·       It was decided in the scheme that the offices or branch network of the reconstructed bank remained same but at the same time the reconstructed bank was permitted to open new offices and branches or close down existing offices or branches.

 

III.          Challenges

i.               Reaction time- less

The customers, stakeholders, and mutual fund investors of YES Bank felt that the time that was offered to them by RBI was highly inadequate. In the meantime, even the shareholders of SBI were perplexed that they did not have a say in the said investment.

 

ii.              Functioning-Ambiguity

The reconstruction opines an arrangement that allows reconstruction bank to open new offices and branches or even close them following the RBI guidelines. At the same time, the scheme also provides for the existing offices and branches of the reconstructed bank to continue functioning as they were doing earlier without having any adverse effect whatsoever by the current scheme.[5]

Hence, these two contradicting clauses have caused some confusion in the minds of stakeholders and depositors.

IV.         Conclusion

The government has time and again reassured the depositors that they are protected. The assurance comes on the pretext that the assets of the bank are adequate to meet its liabilities and hence, are very much solvent. However, the question that is being raised is if the bank is solvent and was competent to undertake substantial business, then the reason must be made clear as to why no commons bids were invited and an opportunity was denied to other banks?

Further, the grievance persisted that the RBI should have provided adequate time for stakeholders for the investment bank to understand all the intricacies and should have taken ample steps to address their concerns.

On rating scales until 2017, Yes Bank trended as one of the front runners as a new generation private bank.[6] The early hiccups were observed when the bank started to face serious NPA issues. Hence, the ultimate objective of Yes Bank Ltd. Reconstruction Scheme, 2020 introduced by the Reserve Bank of India was to bring stability in its functioning. Hence, to assist in withdrawals and fund transfers once the moratorium is lifted, it is estimated that a bulk deposit of Rs 30,000 crore will be infused by the Public sector banks to stabilise the bank.

Furthermore, the bank needs to be reconstructed at the earliest to protect the interests of the depositors. The need of the hour is to take comprehensive steps to help liquidate the NPAs. Therefore, for protection of the rights of the depositors and to regain the confidence of the shareholders, Yes Bank needs to say a ‘Yes’ to the reconstruction process and to arrive at an effective resolution to the underlying issues. 

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[1] Yes Bank, Memorandum and Articles of Yes Bank Limited, (Aug. 08, 2020, 09:00 AM), https://www.yesbank.in/pdf/aoa_moa_yes_bank_limited.

[2] RBI, Yes Bank Ltd. placed under Moratorium (Aug. 08, 2020, 09:00 AM), https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=49476.

[3] The Banking Regulation Act, 1949, s. 45.

[4] No.148, The Gazette of India, (Mar. 13, 2020), http://egazette.nic.in/WriteReadData/2020/218653.pdf.

[5] Supra note at 4.

[6] Yes Bank, Yes bank adjudged best technology bank of-the year-at-Indian banks associations banking-technology awards 2017, (Aug. 08, 2020, 09:00 AM), https://www.yesbank.in/media/press-releases/yes-bank-adjudged-best-technology-bank-of-the-year-at-indian-banks-associations-banking-technology-awards-2017.