Reserve Bank of India Governor Shaktikanta Das tried to calm nervous depositors of Yes Bank, reiterating that their money was absolutely safe and there was no need for them to panic and withdraw their funds. He also assured that the central bank is ready to provide additional liquidity support to the cash-strapped lender, if necessary.
Yes Bank was placed under a moratorium earlier this month, deposit withdrawals capped at Rs 50,000 and its board of directors was superseded by the RBI after the lender failed to get the much needed capital. Under the Yes Bank reconstruction scheme, which was approved by the Union Cabinet last week, State Bank of India and several private sector lenders including HDFC, ICICI Bank, Axis Bank and a few others have agreed to invest together around Rs 10,000 crore to revive the bank.
Das told reporters on Monday that swift action was taken by the RBI and the government in relation to Yes Bank and the key objective of the reconstruction scheme was to protect the interest of the depositors.
“It is a very credible and sustainable restructuring plan. Participation of private sector banks in particular demonstrates the confidence of major players in the banking sector in the revival plan. The depositors' money is absolutely safe and there is no reason for any undue worry or no need for rushing into withdrawing their deposits,” the Governor said.
The uncertainties at Yes Bank has led to a steady withdrawal of deposits over the last several months. Its deposits base declined to around Rs 1.66 lakh crore at the end of December 2019 from Rs 2.09 lakh crore at the end of September. The worry is that more depositors could rush to withdraw their deposits once the moratorium is lifted on Wednesday evening.
Das has tried to assure investors as well as depositors that the Rs 10,000 crore capital infusion done so far was adequate. He also said that the central bank had written to all state governments that there was no reason for them to withdraw their deposits from any private sector bank as the health of all the banks was safe.
“Yes Bank has enough liquidity to meet any requirement. If there is a requirement, the Reserve Bank will provide necessary liquidity support to Yes Bank,” he added.
In a hurriedly called press conference at the RBI headquarters, the Governor also highlighted that the Reserve Bank was ready to take any measures needed to counter the impact of the Covid19 outbreak. Das announced fresh measures to ensure adequate liquidity in the system. However, he didn’t announce any cut in Repo Rate, despite the fact that several central banks including the US Federal Reserve had cut their benchmark interest rates sharply in the last few days.
“The RBI has several instruments at its command and stands ready to take all necessary measures to ensure that the effects of Covid-19 pandemic on the Indian economy are mitigated,” he said.
Taking into account the favourable response to the Dollar sell-buy swap auctions conducted by the central bank, it proposes to conduct another dollar sell-buy swap on March 23 to provide liquidity to the foreign exchange market. Under this scheme, the RBI provides dollars to banks through a swap; the RBI will sell dollars now and buy them back at a set future date.
Also, to further improve the transmission of earlier rate cuts, the RBI will conduct long-term repo operations (LTRO) in multiple tranches up to Rs 1 lakh crore at the policy rate. Under LTRO, the RBI provides one year to three year money to banks at the existing repo rate, in a bid to bring down short-term interest rates.
