RBI Governor Shaktikanta Das on Monday had said the regulator was ready to offer liquidity if required.
“YES Bank has enough liquidity to meet any requirements. If required, the RBI will provide necessary liquidity support to it,” he said.
“Never in the history of banks (in India) have depositors lost money. The point is, depositors’ money is absolutely safe,” Das had said in a conference, adding that the central bank’s support should come as a “comforting factor for depositors”.
However, this is a case of the RBI being the “lender of the last resort”, and, in accordance with the terms of the arrangement, the bank will have to use its immediate liquid assets before it can touch the credit line, sources said. This is perhaps for the first time that the RBI has come with such an arrangement.
In the past it preferred merging troubled banks with solvent ones. There is a technical reason for that even as the RBI officials did not spell it out in the press conference on Monday. “RBI rules say if a bank is both illiquid and insolvent, it must be merged with others. If it is illiquid but solvent, a line of credit can be offered to keep the bank running. That is also part of the RBI’s lender of the last resort function,” said a person with knowledge of the credit line.
The RBI’s assessment found YES Bank had liquidity issues but no solvency problem. And so, the bank was allowed to continue with its business after it was given a bailout, in which public and private banks participated as equity holders, with State Bank of India holding 49 per cent in the bank. Rating agency Moody’s on Monday had raised the bank’s ratings, and upgraded its outlook to positive after the RBI assured liquidity support.
The endless descent
This story is from the March 19, 2020 edition of Business Standard.
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This story is from the March 19, 2020 edition of Business Standard.
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