Trade Nivesh The special liquidity window comes as urgent financial support to the troubled private sector lender and to soothe depositors
The Reserve Bank of India (RBI) is preparing to offer a special liquidity window for Yes Bank as urgent financial support to the troubled private sector lender and soothe the frayed nerves of depositors, three government sources with direct knowledge of the matter told Moneycontrol.
"Considering the peculiar circumstances surrounding this case, the RBI is likely to extend a short-term loan/line of credit to Yes Bank of around Rs 8,000-Rs 10,000 crore to reduce panic among depositors and ensure sufficient funds for permitted withdrawals," said one source. "As it is a special case, the interest component will be lesser and final touches are being given to this plan," they added.
Offering liquidity to a distressed entity, though extremely rare, is permissible under Section 17 of the RBI Act, according to two of the sources. All the three people Moneycontrol spoke to did not want to be named.
Another source said this is the banker’s bank concept and as a central bank, the RBI can take this step under exceptional circumstances. “This not to be confused with negotiations on picking up an equity stake in Yes Bank which are happening simultaneously.”
On Friday, the government launched a rescue plan for Yes Bank under which the State Bank of India (SBI) will pick a 49 percent stake as part of as restructuring proposal. RBI said it had increased Yes Bank's authorised share capital, paving the way for infusion of cash by SBI, India’s largest lender.
Banking analysts who parsed through RBI’s statement estimated that SBI is due to invest about Rs 2,450 crore. But there was no clarity on the cash infusion or details about the final investor for Yes Bank, whose finances have severely deteriorated under a pile of bad loans.
India’s fifth biggest private lender badly needs funds after struggling for months to raise $2 billion. Analysts said Yes Bank requires much more capital than what SBI might invest.
Finance minister Nirmala Sitharaman told reporters the restructuring proposal would be implemented within 30 days.
On March 5, SBI said its board had given an in-principle approval to explore an investment in Yes Bank. Earlier that day, in a sudden move, the RBI took control of Yes Bank and limited withdrawals.
"The financial position of Yes Bank has undergone a steady decline largely due to inability of the bank to raise capital to address potential loan losses and resultant downgrades," RBI said.
The Reserve Bank of India (RBI) is preparing to offer a special liquidity window for Yes Bank as urgent financial support to the troubled private sector lender and soothe the frayed nerves of depositors, three government sources with direct knowledge of the matter told Moneycontrol.
"Considering the peculiar circumstances surrounding this case, the RBI is likely to extend a short-term loan/line of credit to Yes Bank of around Rs 8,000-Rs 10,000 crore to reduce panic among depositors and ensure sufficient funds for permitted withdrawals," said one source. "As it is a special case, the interest component will be lesser and final touches are being given to this plan," they added.
Offering liquidity to a distressed entity, though extremely rare, is permissible under Section 17 of the RBI Act, according to two of the sources. All the three people Moneycontrol spoke to did not want to be named.
Another source said this is the banker’s bank concept and as a central bank, the RBI can take this step under exceptional circumstances. “This not to be confused with negotiations on picking up an equity stake in Yes Bank which are happening simultaneously.”
On Friday, the government launched a rescue plan for Yes Bank under which the State Bank of India (SBI) will pick a 49 percent stake as part of as restructuring proposal. RBI said it had increased Yes Bank's authorised share capital, paving the way for infusion of cash by SBI, India’s largest lender.
Banking analysts who parsed through RBI’s statement estimated that SBI is due to invest about Rs 2,450 crore. But there was no clarity on the cash infusion or details about the final investor for Yes Bank, whose finances have severely deteriorated under a pile of bad loans.
India’s fifth biggest private lender badly needs funds after struggling for months to raise $2 billion. Analysts said Yes Bank requires much more capital than what SBI might invest.
Finance minister Nirmala Sitharaman told reporters the restructuring proposal would be implemented within 30 days.
On March 5, SBI said its board had given an in-principle approval to explore an investment in Yes Bank. Earlier that day, in a sudden move, the RBI took control of Yes Bank and limited withdrawals.
"The financial position of Yes Bank has undergone a steady decline largely due to inability of the bank to raise capital to address potential loan losses and resultant downgrades," RBI said.
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