India seizes embattled Yes Bank to implement a revival plan
Moody’s Investors Service cut the bank’s credit ratings in December.
India seized the beleaguered Yes Bank Ltd., capped withdrawals and imposed curbs on its operations, pledging to implement a rescue plan within 30 days as the lender’s woes threatened to destabilize the financial system.
The Reserve Bank of India ordered the lender not to extend new loans or make payments for its liabilities, according to a statement. It also curbed withdrawals to 50,000 rupees ($682) for the next 30 days.
The overthrow of Yes Bank’s board will help authorities implement a revival plan after numerous attempts by the lender to raise capital failed. Under a government-backed proposal State Bank of India, the nation’s largest lender, has been selected to lead a consortium that will inject new capital into Yes Bank, people familiar with the matter said earlier on Thursday. It marks yet another instance of the government being forced to intervene to stem an erosion of confidence among investors.
“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 seize Yes Bank, the RBI said in the statement. “The bank was facing regular outflow of liquidity.”
The move also highlights India’s struggle to contain a crisis among shadow lenders that has choked credit to consumers and small businesses, slowing economic growth to an 11-year low.
Yes Bank has been unable to quickly raise the capital needed 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 Ltd. in September 2018.
“It seems the RBI would like the bank to continue as a separate entity and wants a change in ownership to rehabilitate Yes Bank,” said Mitul Budhbhatti, an analyst at CARE Ratings. “Clarity on timing of capital infusion and the path ahead will be a key to any rating decisions going ahead.”
The government took over IL&FS in 2018 in an effort to reassure creditors after the defaults. And last year, the Reserve Bank of India seized control of another struggling shadow lender, Dewan Housing Finance Corp., and said it will initiate bankruptcy proceedings.
RBI Governor Shaktikanta Das pledged this week in an interview with Bloomberg News that no major bank would be allowed to fail. He didn’t comment on the revival plan in an interview to BloombergQuint earlier on Thursday.
State Bank has been authorized to select other members of the consortium, the people said earlier on Thursday, asking not to be identified as the information isn’t public.
Yes Bank’s total exposure to shadow lenders and developers – both caught up in a funding crunch since late 2018 – was 11.5% as of September, filings show. A Credit Suisse Group AG note in April marked Yes Bank out as the lender with the largest proportion of outstanding loans to large stressed borrowers, including Anil Ambani group companies, Essel Group, Dewan Housing and IL&FS.
Last month, Yes Bank said it has received non-binding offers from foreign investors including JC Flowers & Co., Tilden Capital, Oak Hill Advisors and Silver Point Capital. However, it wasn’t the first time the bank had announced names of potential investors. In November, the bank’s board disclosed several other names before rejecting most of the offers.
Moody’s Investors Service cut the bank’s credit ratings in December and in January said its “standalone viability is getting increasingly challenged by its slowness in raising new capital.”