The brief summary of the key elements of the World Bank Principles for effective insolvency &am...
Yes bank Ltd. has been facing various turmoil and financial disturbances from the year 2018, and the bank was looking for some investment options to control the business losses and rectify its assets-liabilities misbalance. For this, the bank has undergone so many changes to overcome from this crisis situation like the appointment of Ravneet Gill as MD and CEO, taking control from Mr Rana, obtaining bids from the foreign investors and more. However, unfortunately, the situation could not be improved owing to a number of problems due to regulatory and other issues. Moreover, the bank has lost its market value from Rs. 174 per share to 29 per share (currently around 17 per share after the issue of Yes Bank Reconstruction Scheme).
The continuous deteriorating financial structure of the Yes Bank Ltd. with regard to its liquidity, capital and other critical measurable financials has triggered the RBI to step into the matter. Also, the absence of any back-up plan for infusion of capital has compelled the Reserve Bank of India to take immediate action in public interest and particularly to protect the interest of the depositors. Ultimately, the RBI had to use its discretionary power under the Banking Regulation Act 1949 and has taken control over the bank since 5th March 2020. After a day of placing Yes Bank’s business under moratorium and superseding its Board, the Reserve Bank of India (RBI) has brought forward a reconstruction scheme.
The Reserve Bank of India bank has issued the reconstruction scheme for the Yes Bank Ltd. and major highlights of the scheme are as follows:
Article 110(b) – This relates to the rights of Indian partners to recommend the appointment of three “IP Representative Directors”
Article 127(b) – This relates to the right to Indian partners to recommend the name of the chairman and CEO.
Article 127A(a) – This relates to the recommendation of promoters to appoint the WTD.
Article 127A(b) – This related to WTD being necessarily to be out of the board members.
It is an unprecedented move taken by the RBI wherein the Central Bank of the country has completely taken control to improve the financial position of a private sector bank. The YES Bank Reconstruction Scheme has been put into place in light of the view that the State Bank of India has wilfully shown interest in taking over. But there will be 30 days of the moratorium period. The RBI has used its discretionary power under 36ACA of the Banking Regulation Act 1949. Shri Prashant Kumar (ex-DMD and CFO of State Bank of India) has been appointed as administrator under Section 36ACA(2) of the Act. These steps are taken to quickly restore the depositors’ confidence in the bank.
See Our Recommendation: The Banking Regulation (Amendment) Ordinance, 2017 – a positive step for the banking industry.