New Delhi: The Reserve Bank has opened an emergency line of credit of around Rs 60,000 crore to Yes Bank to meet any liquidity crisis in paying back its depositors as the bank resumes normal operations from Thursday.
The additional liquidity arsenal is in line with Section 17 (4) of the RBI Act and also is a reaffirmation of the governor’s statement on Monday that the central bank was ready to provide all the necessary liquidity support to Yes Bank.
The move comes after 16 years when a similar credit line was opened for Global Trust Bank in 2004.
According to central bank sources, the RBI’s assessment found Yes Bank had liquidity issues but no solvency problem or any other issue.
The line of credit of about Rs 60,000 crore, however, comes with a caveat — the first such exercise by the central bank, the sources said.
A senior central bank officer, who wished not to be named, said, “Yes, we’ve opened an emergency line of credit ready for Yes Bank worth Rs 59,000 crore to meet any eventuality on the liquidity front.”
“The credit line is balanced against the bank’s current account balance which is of same amount as of now,” the official told PTI Thursday—a day when the private lender completes a full-day of normal services after the 13 days of moratorium and operations curbs.
Facing a collapse of the fourth largest private lender, the Reserve Bank sacked its management and placed it under an administrator in the evening of March 5 with a 30-day moratorium.
But strong backing by SBI and seven other private lenders could see the bank coming out of the ICU and resuming full operations this morning after the RBI had withdrawn the withdrawal limits last evening.
The officer, however, said, “The bank has not availed of the credit line yet” as over the past many days, it has been seeing more cash inflows than outflows and that “the emergency credit line is linked to the bank’s current account balance and the bank will be paying a higher interest to the central bank than the prevailing liquidity windows.”
Since the RBI is the lender of the last resort, according to the terms of the restructuring arrangement prepared by the RBI and government, Yes Bank would have to exhaust all its immediate liquid assets before accessing this fund, the official added.
While Yes Bank’s average daily withdrawals had been to the tune of Rs 28,000 crore during the moratorium days, the daily inflows have been higher at Rs 35,000 crore.
This indicates that the bank may not draw down from the credit line at all, the officer added.
The emergency liquidity window kept opened for Yes Bank comes after 16 long years—when it was first used in recent decades for Global Trust Bank that went belly up in 2004 and was bailed out by a merger with the state-run Oriental Bank of Commerce in August of that year.
It can be noted that governor Shaktikanta Das had March 16 reiterated that he would not allow Yes Bank and make depositors lose their hard-earned money.
“If required the RBI will provide necessary liquidity support to Yes Bank to meet its obligations to depositors and that never in our banking history there was an instance when a depositor lost his money,” Das told the press this Monday.
Within hours of the RBI presser, the rating agency Moody’s raised the lenders’ ratings and upgraded the outlook to positive.
March 14, the government notified the rescue plan drafted by the RBI under which State Bank would pick up to 49 per cent equity in the Yes Bank.
Soon six other private lenders—ICICI Bank and HDFC (Rs 1,000 crore each), Kotak Mahindra Bank and Axis Bank (Rs 600 crore each), Federal Bank and Bandhan Bank (Rs 350 crore each) and India First Bank (Rs 250 crore) joined SBI to shield the banking sector from a widespread crisis all of them collectively have pumped in Rs 10,000 crore into the bank with SBI alone infusing Rs 6,050 crore.