India: Yes Bank Moratorium, 2020

In early March 2020, Yes Bank had a declining financial position due to an inability to raise capital independently, and an outflow of liquidity through deposit withdrawals and increasing credit losses on its nonperforming loan portfolio (RBI 2020c). Yes Bank had a cash outflow of INR 85 billion as a prepayment by February 29, 2020, which was the final trigger to prompt the RBI to draft a rescue plan (YESB 2020b).

On March 5, 2020, the RBI recommended that the government of India place Yes Bank under a moratorium,^FNA moratorium was designed to provide a corporate debtor some breathing space, while the new management can take over and recover the debtor from financial sickness (Panday 2023). The term has been used increasingly since the adoption of the Insolvency and Bankruptcy Code, 2016 (IBC). Matters that require a moratorium are provided in Section 14 of the IBC. A moratorium is a period where no judicial proceedings can be filed against the debtor during the specified period (IBC Laws 2023) (see Key Design Decision No. 3, Legal Authority). starting at 6pm that day, until April 3, 2020, “in the absence of a credible revival plan, and in public interest and the interest of the bank’s depositors” (MoF 2020a; RBI 2020c). The moratorium kept Yes Bank open, but restricted its operations, while the RBI secured the management and formulated a restructuring plan (MoF 2020b). During the moratorium, actions against the bank were stayed, its operations restricted, and depositor withdrawals were, with few exceptions, limited to INR 50,000 per depositor (MoF 2020a). Yes Bank was allowed to continue to utilize its account at the RBI, pay loans granted against government debt to any bank, and release securities that may have been pledged, mortgaged, or rehypothecated. By recommending a moratorium for Yes bank, the RBI choose not to recommend a winding down, which it also had the authority to do per Section 38 of the Banking Regulation Act, 1949 (BRA) (MoF 2020b). On March 13, 2020, the MoF presented a restructuring plan for Yes Bank under subsection (4) and subsection (7) of section 45 of the BRA (MoF 2020b).

Rajnish Kumar, SBI’s former chair, stated in his memoir that, “the failure of Yes Bank would definitely pose a significant threat to the franchise of private banks in the country, particularly the smaller banks” (Kumar 2021, 15). Kumar states that the RBI was negotiating with domestic and foreign investors to provide capital to Yes Bank after submitting a draft rescue plan on March 5, 2020. SBI was initially proposed as the sole investor in the capital injection but could only provide equity capital by March 19. Kumar also highlighted SBI’s concerns of “real risk of a run on Yes Bank” after the moratorium would be lifted. Finally, the RBI agreed to provide capital to Yes Bank through a consortium of banks led by SBI by March 13, 2020. Kumar indicated a 49.9% limitation of public ownership in Yes Bank after the capital infusion (Kumar 2021).

On March 5, the RBI proposed a draft restructuring plan for Yes Bank, which was approved (in substantially the same form) by the MoF on March 13. As per the MoF’s final restructuring plan, the moratorium period (and depositor withdrawal limits) ended at 6pm on March 18, 2020 (MoF 2020b). See Key Design Decision No. 2, Part of a Package, for further discussion of the restructuring plan.

Former RBI Governor Duvvuri said in a 2011 speech at the Bank of International Settlements that a bank is placed in a moratorium if the weakness in the bank persists, its net worth (equity capital) is negative, and there is no credible action plan. Governor Duvvuri stated that the purpose of the moratorium was to prevent a run on the bank, avoid asset fire sales, and provide time to the regulators to find a suitable bank for an acquisition. He said the merger process for the failing bank should be expedited and done in a transparent manner (Duvvuri 2011).

The RBI announced a capital injection of INR 100 billion into Yes Bank led by a consortium of eight Indian public and private banks (For details, see Gupta [2024a])(MoF 2020a; RBI 2020c; YESB 2021). All new and existing investors (with more than 100 shares) in Yes Bank were required to maintain 75% of their shareholding for three years from the date of the restructuring plan. Any capital gains tax with respect to the investment in Yes bank was waived for the private banks in the consortium. (MoF 2020b).

As per the final restructuring scheme by the MoF on March 13, 2020, Yes Bank was to issue 10 billion equity shares at INR 10 per share (face value of INR 2 per share) (YESB 2021). RBI did not provide any funding directly for the resolution plan. There was also reluctance to raise capital from domestic individual investors due to potential allegations of profiteering from the rescue operations. The requirement of a three-year lock-in period was designed to prevent any allegations of abuse of the rescue plan by investors (Kumar 2021).

The RBI’s rescue plan ensured the continuation of all pre-existing Yes Bank agreements, bonds, and contracts without any change (RBI 2020d). On March 14, Yes Bank took a permanent write-down of INR 84 billion in AT1 capital, as mentioned in the RBI’s draft plan (YESB 2020b).  

The RBI initially wanted to route its emergency liquidity support for Yes Bank through SBI. SBI’s leadership rejected this plan citing the inability to “shoulder such a large responsibility” and recommended that the RBI provide direct liquidity support to Yes Bank (Kumar 2021, 14). After approval of the final rescue plan, the RBI also extended a INR 600 billion credit line to Yes Bank to meet the needs of depositors, promising none would lose money (The Tribune 2020). Yes Bank withdrew INR 520 billion of secured borrowing under this line. (YESB 2020b). The emergency credit line to Yes Bank was linked to the bank’s current account balances with the RBI and charged a higher rate of interest than the central bank’s other liquidity windows. Yes Bank also agreed to utilize all its liquid assets before using the RBI’s emergency liquidity line (PTI 2020a). (See Gupta [2024a] for further details on the restructuring plan.)

The RBI appointed an administrator for the reconstructed bank, whose term would end seven days after the end of the moratorium on Yes Bank. The MoF’s final plan appointed a new board to the reconstructed Yes Bank comprising four members, with the former CFO of SBI (lead investor bank) as the CEO and former nonexecutive chairman of Punjab National Bank (leading public-sector bank) as the nonexecutive chairman. The reconstructed board was to remain in place for one year or until an alternate board was constructed according to the articles of association of Yes Bank (MoF 2020b).

The RBI had raised the deposit insurance limit provided by the Deposit Insurance and Credit Guarantee Corporate (DICGC, subsidiary of RBI) from INR 100,000 to INR 500,000 per depositor in February 2020 across all banks. There was no explicit reference to Yes Bank in these disclosures (Dubey 2020; RBI 2020g).

In late March 2020, the RBI reduced its benchmark rates by 75 basis points (bps) for the entire banking system and the government of India announced a fiscal package of INR 1.7 trillion comprising cash transfers and food security as a response to the COVID-19 pandemic (PTI 2020b).

The RBI is constituted by the Reserve Bank of India Act, 1934 (RBI Act) (RBI 2020a). Yes Bank is a banking company governed by the BRA (YESB 2023a). The RBI provided the emergency liquidity of INR 600 billion to Yes Bank as per section 17(4) of the RBI Act (PTI 2020a).

There was no new legislation passed to facilitate the imposition of the moratorium. The RBI made an application to the MoF to place Yes Bank under a moratorium as per subsection (1) of section 45 of the BRA (10 of 1949) and on March 5, India’s MoF confirmed the order as per subsection (2) (GoI 1949; MoF 2020a; RBI 2020a; RBI 2020h). A moratorium in India is similar to receivership in the United States, in that the troubled financial institution is protected to maximize value of the assets of the institution in an orderly manner.

Section 45 of the BRA allows the government of India to consider an application by the RBI to suspend the business of a bank and place the bank in moratorium, thereby putting a hold on “the commencement or continuance of all actions and proceedings” against the company for a fixed period of time, not exceeding six months. During the moratorium, except as specified by the government in the Order of Moratorium, the bank may not “make any payment to any depositors or discharge any liabilities or obligations to any other creditors.” India’s MoF initially granted a moratorium to Yes Bank, as per the RBI’s request, for a period of 30 days from March 5 to April 3, 2020 (inclusive) (MoF 2020a). (For details on the Legal Authority for Yes Bank’s resolution, see Key Design Decision No. 3, Legal Authority, in Gupta [2024a] and Gupta [2024b].)

On March 13, the Ministry of Finance announced approval of a final reconstruction scheme for Yes Bank (recommended by the RBI) and an end to the moratorium in three working days (at 6pm on March 18, 2020) (MoF 2020b).

The term “moratorium” has been used increasingly since the adoption of the Insolvency and Bankruptcy Code (IBC) in 2016. Matters that require a moratorium are provided in Section 14 of the IBC (IBC Laws 2023).

The moratorium refers to a period during which judicial proceedings, sales of assets, or termination of essential contracts may not be initiated against an institution (IBC Laws 2023). India’s judicial courts have stated that the imposition of a moratorium is to protect the debtor, in an attempt to preserve and maximize the values of its assets (Jha and Chawla 2023). The regulating authority can impose a moratorium as per section 13(1)(a) of the IBC (IBC Laws 2023).

A published interpretation by India’s Insolvency Law Committee clarified the following in February 2020:

As part of the final restructuring plan, the MoF agreed to exempt the investors who injected new capital into Yes Bank from capital gains taxes on any profits resulting from this participation period under Income-tax Act, 1961 (43 of 1961) (MoF 2020b). The Central Board of Direct Taxes had to amend rules in the Finance Act 2019 to allow this exemption (Dhasmana 2020).

On July 26, 2020, the Ministry of Law and Justice (legislative department) disclosed a list of amendments to the BRA following an ordinance by the president of India, as per powers under clause (1) of Article 123 of the Constitution of India. The bill to amend the BRA had been initially presented to the Lok Sabha (House of the People) on March 3, 2020 (GoI 2020).

On March 5, 2020, the MoF granted the Order of Moratorium as recommended by the RBI for a period ending on April 3, 2020 (MoF 2020a). The order outlined the terms of the moratorium which were augmented by a directive issued by the RBI (MoF 2020a; RBI 2020d).

The RBI directed Yes Bank to not grant any new loan, make any new investment, incur any liability or expense without special permission from the chief general manager in the Department of Regulation at the RBI (RBI 2020h). The RBI’s directives were provided under section 35A of the BRA (RBI 2020c; RBI 2020h).

On March 6, the RBI proposed a draft restructuring plan, which the MoF approved on March 13, providing that the moratorium would terminate on March 18, 2020. The MoF’s plan provided certain terms applicable to Yes Bank regarding a new capital structure, new investment by SBI and a private consortium of investors, composition of the board of directors, status of the reconstructed bank vis-à-vis its creditors and counterparties, employees, branches, and furnishing certain statements to the RBI. Any questions regarding interpretation of the plan were to be referred to and resolved by the RBI (MoF 2020b).

Former RBI Governor Duvvuri has discussed how the RBI is responsible for maintaining the financial safety net, while the Deposit Insurance and DICGC’s role (as a subsidiary of the RBI) is largely to protect small depositors. The DICGC also has a role to play in some resolutions, to compensate some depositors since the acquiring bank cannot meet this liability (Duvvuri 2011).

On March 5, 2020, the MoF placed Yes Bank under a moratorium, after recommendation from the RBI, to address the bank’s regular outflow of liquidity, with the inability to raise capital amid serious governance issues. The RBI had been engaged with the bank in the months prior to the announcements to help strengthen the bank’s balance sheet and liquidity. The RBI declared in the moratorium announcement that it was formulating a restructuring plan for Yes Bank, which would be implemented before the end of the moratorium period, within 30 days, after approval from the government of India (RBI 2020c).

On March 6, the RBI authored and disclosed a draft resolution plan for Yes Bank, which was accepting comments until March 9, 2020 (RBI 2020d). The RBI was to appoint an administrator for the reconstructed bank, who was to leave their office within seven days of the end of the moratorium period. The MoF appointed a new board to the reconstructed Yes Bank as part of a restructuring plan. This board of directors would continue in office for one year, or until a new board was formed as per Yes Bank’s articles of association (MoF 2020b). Yes Bank’s final rescue plan was approved by the government of India’s Cabinet of Ministers on March 14 (ET 2020).

Yes Bank was required to submit filings to the RBI periodically to report on the implementation of the restructuring plan. Any concerns regarding the execution of the plan were to be directed to the RBI, and the central bank had final say on the matter (RBI 2020d).

Yes Bank successfully formed an alternate board after restructuring on July 15, 2022 as per clause 5(7) of the RBI’s plan (YESB 2023a).

Resolutions are managed by the regulator and supervisor in India, with the deposit authority taking the role of a special vehicle to compensate certain depositors (Duvvuri 2011).

Yes Bank’s restructuring plan was announced by an “extraordinary notification” in the Official Gazette by the Banking Division of the MoF on March 5, 2020 (MoF 2020a). On the same day, the RBI issued two separate press releases announcing that MoF had placed Yes Bank in moratorium, superseded its board, and appointed an interim administrator (RBI 2020b; RBI 2020c). On March 6, the RBI disclosed a draft plan with details of the restructurings and allowed three days to accept comments (RBI 2020d). The RBI’s draft plan mentioned only SBI as willing to participate in Yes Bank’s restructuring (RBI 2020a).

The RBI Governor Shaktikanta Das stated on March 3, 2020, just prior to Yes Bank’s rescue, that the RBI was committed to banking sector stability and would “never allow a major bank to you know . . . (fail)” (RBI 2020f). On March 6, while presenting the RBI’s draft plan, Governor Das stressed that all “depositors’ interests will be fully protected” (Ghosh 2020). Governor Das reassured markets that 30 days was the outer limit for the moratorium, and that the RBI should have a rescue plan in place swiftly (Ghosh 2020). On March 13, the MoF announced the final restructuring plan, and provided that the moratorium would end three business days later, thereby limiting the total duration to less than two weeks. The final restructuring plan included the mention of other (unnamed) investors, apart from SBI, that were willing to provide an equity investment in Yes Bank (MoF 2020b).

Das also stated the RBI’s preference for a “market-based resolution” or an “investor-based resolution” for Yes Bank. In terms of timing, the RBI intervened once it had determined that it “cannot and should not wait any longer.” The government of India’s chief economic adviser, K. Subramanian, also declared that a moratorium was the best solution for Yes Bank (Ghosh 2020).

Immediately after the moratorium announcement, depositors of Yes Bank began to report their concerns with the proposed withdrawal limits. Some depositors expressed concerns that the INR 50,000 limit would not be adequate to cover necessary monthly expenses, such as rent and school fees, and reported that they were unable to access ATMs or digital banking services. Depositors were reported to have multiple accounts at Yes Bank, with cumulative balances (including fixed and time deposits) above the deposit insurance limit of INR 500,000 (Mint 2020a).

On March 6, Prashant Kumar, the interim administrator of Yes Bank, stated in a press release:

On March 8, the RBI wrote on Twitter (now X) that the media concern about the safety of deposits at banks is based on a flawed analysis, which focused on market capitalizations of some banks rather than the internationally recognized capital-to-risk-weighted-assets ratio (RBI 2020e). The RBI reiterated that it was closely monitoring all banks and assured all depositors that there was no concern in any bank with the safety of deposits (NDTV Profit 2020).

On March 9, Kumar stated that the moratorium could be lifted earlier than expected, and that Yes Bank’s deposits were “absolutely safe” with no liquidity issues, with additional “lines of comfort” from the RBI and SBI (NDTV Profit 2020).

On March 17, Kumar wrote a letter to the depositors, stressing that Yes Bank’s “ATMs are full of cash,” and that the bank will provide a full suite of services to customers starting 6pm on March 18 (see Appendix B) (Business Today 2020c). Kumar also noted separately that 30% of eligible depositors had withdrawn money to the maximum limit. After being asked about a forensic audit of Yes Bank, SBI Chairman Rajnish Kumar added that there was nothing wrong with Yes Bank’s books, with the latest financial results providing a full disclosure of the NPLs and adequate provisioning (Nair 2020).

In a speech in July 2020, Governor Das declared that the successful resolution of Yes Bank helped ensure the stability of the financial system and safeguarded the interests of depositors. The RBI sought out partnerships with India’s leading financial institutions (both public and private) in the capital injection, while quickly implementing the rescue plan, which helped Yes Bank’s revival (Das 2020).

India’s MoF, after a recommendation from the RBI, imposed a moratorium on Yes Bank for a 30-day period during which all actions against the bank were stayed, and its operations were restricted to only those permitted by directives issued by the MoF and RBI. The MoF’s draft plan restricted Yes Bank to provide payments to any new depositor over INR 50,000 during the moratorium and seek written permission from the RBI for any payout exceeding the same amount. Yes Bank was allowed to continue to make payments that were unpaid as of the date of the moratorium announcement, especially for the amounts that were backed by government securities. The MoF also allowed Yes Bank to continue to deliver securities that may have been pledged, hypothecated, or mortgaged. The RBI was allowed to make exceptions to the withdrawal limits that would have permitted withdrawals greater than INR 50,000 for depositors in the case of:

• Medical treatment;
• Higher education;
• Marriage;
• Any other “unavoidable emergency.”

The maximum allowed exception to withdrawal limits would be the lesser of either the depositor’s account balance or INR 500,000 (MoF 2020a).

During the moratorium, the RBI directed Yes Bank to not grant any new loan, make any new investment, incur any liability or expense without special permission from the chief general manager in the Department of Regulation at the RBI (RBI 2020h). (For details, see Key Design Decision No. 1, Purpose in Gupta [2024b].)

Immediately after the moratorium announcement on March 5, users of PhonePe (a leading instant payments provider with 100 million merchants, 200 million users, and 300 million locations) experienced service outages for 24 hours (Bhakta 2020; PYMNTS 2020). PhonePe wrote on Twitter (now X) account that they were experiencing an “unscheduled maintenance activity” and apologized for the incident (OpIndia Staff 2020). GooglePay (leader in instant payments) turned off the “check account balance” feature during PhonePe’s outage (PYMNTS 2020). BharatPe, another payments provider, which deploys QR codes for small merchant outlets, also ceased to function (Bhakta 2020).

On March 6, PhonePe reported a return of functionality of all merchant payment settlements by noon and of all consumer wallet, and credit and debit card payments by 3pm (PYMNTS 2020). On the same day, the National Payments Corporation of India (NPCI)^FNNPCI was setup in an initiative by the RBI and the Indian Banks’ Association (IBA) under the Payment and Settlement Act, 2007 to create the infrastructure for the entire banking system in India, including electronic payments and settlement. The 10 core banks with an ownership in NPCI are SBI, PNB, Canara Bank, Bank of Baroda, Union Bank of India, Bank of India, ICICI Bank, HDFC Bank, Citibank, and HSBC. Over the years, the NPCI’s shareholding has been broadened by the issuance of privately placed equity shares to include 56 member banks and other new entities regulated by the RBI such as payment service operators, payments banks, and small finance banks (NPCI n.d.). also suspended the use of Yes Bank’s credit cards, debit cards, and point-of-sale payment terminals (NDTV Profit 2020).

Yes Bank reported the restoration of its cards and ATMs on Saturday, March 7 (NDTV Profit 2020). Despite the restoration of payment services over the weekend of March 7–8, certain businesses, such as gas stations, rejected any instant payments associated with the Unified Payments Interface (UPI)^FNUPI is an instant real-time payment system developed by the NPCI to facilitate interbank transactions; the system is regulated by the RBI (PYMNTS 2020). UPI has been attributed with ensuring that every Indian bank account holder can participate in digital payments, independent of their bank’s digital capabilities (Rawat 2020). from a range of service providers, including GooglePay, PhonePe, and Paytm (PYMNTS 2020). Most of the transactions associated with Yes Bank’s digital payments operations originated from PhonePe. Before its restructuring, Yes Bank was the leader in the UPI space with a record of 573 million digital transactions in one month (Rawat 2020).^FNAfter the moratorium ended, SBI took Yes Bank’s leadership role in facilitating the highest number of UPI transactions at 300 million to 350 million per month (Rawat 2020).

Yes Bank accounted for 40% of the UPI’s market share and was assisted by NPCI in re-directing all digital payment flows to ICICI Bank during the moratorium period. This helped stave off a potential crisis with the digital payments system as a result of Yes Bank’s rescue (Bhakta 2020).  

On Sunday, March 8, Yes Bank released a list of frequently asked questions (FAQ) to help customers better understand the impact of the moratorium. The FAQ clarified that:

•  ATMs were functioning and provided a digital tool to help locate one close to the depositor;
• The withdrawal limit of INR 50,000 was applicable at the “customer ID level”;
• The withdrawal limit applied to joint accounts or dependents;
• Online wire transfers via RTGS or NEFT^FNThe RBI maintains two systems of interbank transfer in India: RTGS (Real-Time Gross Settlement) and NEFT (National Electronic Fund Transfer) (SBI 2024). were suspended;
• Clearing activities for Yes Bank’s checks and direct deposits were suspended;
• Locker facilities could be accessed and operated.

By Tuesday, March 10, Yes Bank had restored the ability to accept inward banking transactions (such as NEFT) towards credit card dues or loan payments from other bank accounts (NDTV Profit 2020).

The MoF’s final plan on March 13 allowed Yes Bank to continue to repay loans and advances from other banks during the moratorium period. The MoF allowed Yes Bank to continue to operate its account at the RBI during the moratorium and continue to release securities that may have previously been pledged, hypothecated, or mortgaged. The final plan stated that all of Yes Bank’s deposits and liabilities would be unaffected by the reconstruction plan, unless explicitly stated (MoF 2020b).

On Monday, March 16, Yes Bank announced that it would resume full banking services, including digital platforms, from 6pm on Wednesday, March 18, after the moratorium was lifted. Yes Bank further stated that outwards payments (NEFT and RTGS) would also be resumed, along with the ability to use Yes Bank credit cards on digital payment applications. However, Yes Bank was unable to clear checks, since the RBI had still suspended the bank’s clearing activities (NH Web Desk 2020).

As per the MoF’s final restructuring plan, the moratorium period ended at 6pm on March 18, 2020 (MoF 2020b).

Depositors of Yes Bank did not experience any losses and only were subject to withdrawal limits of INR 50,000 per depositor during the moratorium period; these restrictions expired with the termination of the moratorium after approval of the rescue plan (RBI 2020d). There were no other associated restrictions (dividend or compensation) after the capital infusion as disclosed by the RBI’s restructuring plan.

The RBI’s directive as per Section 35A of the BRA provided for exceptions to incur expenses during the moratorium for:

• Payment of employee salaries;
• Rent and taxes;
• Office supplies;
• Postage;
• Legal expenses (not exceeding INR 50,000).

The total expenses permissible by the RBI were not to exceed the average expenditure on the line item for the six months preceding the moratorium announcement. If no expenditure had been incurred previously, then the total permissible payout was capped at INR 50,000 (RBI 2020h).

The RBI’s draft plan on March 6, 2020, required the permanent write-down of the AT1 capital issued by Yes Bank in 2016 and 2017 (RBI 2020d). On March 14, 2020, Yes Bank was following legal advice and had fully written down AT1 bonds worth INR 84 billion (YESB 2020b).

The MoF’s final restructuring plan for YES bank anticipated that no branches would be closed and all of Yes Bank’s branches would continue to operate in an unchanged manner during the moratorium period (MoF 2020b).

The MoF also directed Yes Bank to provide financial statements and information to the RBI from “time to time.” The MoF also stated that any concerns arising from the interpretation of the final restructuring plan should be directed to the RBI, with the RBI’s views as final and binding on the topic (MoF 2020b).

After the announcement of the final rescue plan, despite the lack of retail depositor panic, some state governments began to advise their departments to shift funds away from private sector banks to public sector banks. The RBI wrote to the chief secretaries of states to warn that such a concern over deposits in private sector banks was “highly misplaced” and could have destabilizing effects on the banking and financial system (Ramchandani and Jethwani 2021).

In his memoir, former SBI Chairman Rajnish Kumar points out that following the end of the moratorium, corporates and state governments withdrew bulk deposits from Yes Bank. The exact extent of the bulk deposit flight is not clear, but Kumar asserts that the RBI’s special liquidity facility of INR 500 billion was essential to Yes Bank’s survival through that period (Kumar 2021, 20).

On March 17, 2020, the RBI announced that all banks shall not make any dividend payments for the financial year ending in March 2020 until further instructions from the RBI, and to conserve capital due to the uncertainty from the COVID-19 pandemic (YESB 2020b).

On March 24, 2020, India’s 1.3 billion people started 21 days of lockdown to stop the spread of COVID-19. India’s Home Ministry issued a statement declaring certain exemptions for essential services, such as banks, gas stations, and food shops, to remain open (Schultz and Gettleman 2020).

Yes Bank was functioning on a going-concern basis after breaching the RBI’s CET1 requirements at the end of December 2019. Yes Bank reported breaching the regulator LCR, as deposits dropped from INR 2.1 trillion in September 2019, to INR 1.6 trillion in December 2019, and to INR 1.1 trillion by March 31, 2020. Yes Bank’s deposit base bottomed at INR 1.0 trillion as of May 2, 2020 (see Figure 3) (YESB 2021).

Yes Bank was determined to be unviable as a result of the RBI’s rescue plan in early March 2020. Yes Bank’s newly constructed board of directors made an assessment on Yes Bank’s ability to continue functioning on a going concern basis for three years, given the announced equity capital infusion by the RBI’s plan (YESB 2021).

By March 6, 2020, Yes Bank’s equity share price had declined 96% and reached an all-time low of INR 5.65 per share after the announcement of the RBI’s plan (Business Today 2020a). The RBI’s plan provided a capital infusion to Yes Bank at INR 10 per share (MoF 2020b). The announcement of the early termination of the moratorium on March 16, led to a 50% rise in the share price of Yes Bank on March 18 (Moneycontrol News 2020) (see Key Design Decision No.6, Communication and Disclosure, for details on the public statements during the end of the moratorium). Yes Bank’s deposits continued to decline until early May 2020, while the equity share price consistently maintained a 150% premium to the capital infusion on March 14, 2020.

There was no valuation or solvency report disclosed by the RBI or by Yes Bank, before the moratorium was lifted on March 18.

The RBI replaced the board of directors of Yes Bank on March 5 under 36ACA of the BRA to restore the faith of depositors while a restructuring plan was being formulated (RBI 2020b). The RBI provided additional direction to Yes Bank to limit business activity in interest of the depositors under 35A of the BRA (RBI 2020a). The RBI could appoint additional directors to the restructured entity under subsection 1 of section 36AB of the BRA (RBI 2020d).

On March 13, as part of the MoF’s final plan, the RBI appointed a new board to the reconstructed Yes Bank comprising four members, with the former CFO of the SBI (lead investor bank) as the CEO and the former nonexecutive chairman of Punjab National Bank (leading public-sector bank) as the nonexecutive chairman. The reconstructed board was to remain in place for one year or until an alternate board was constructed, pursuant to the articles of association of Yes Bank (MoF 2020b). On March 26, 2020, eight individuals were appointed to form the board of directors of the reconstructed Yes Bank (YESB 2020b). (For details see Key Design Decision No. 5, Governance, in Gupta [2024b].).

Rana Kapoor, the founder of Yes Bank, was arrested in March 2020 by the Enforcement Directorate (ED), a federal law enforcement body for economic and foreign exchange ­related crimes and subsidiary of the MoF, for allegations of money laundering of INR 50 billion (Jagannath 2020; Samervel 2023). In July 2020, the ED froze assets of Kapoor worth INR 14 billion, including luxury cars and properties across India, Australia, the United Kingdom, and the US (Jagannath 2020).

The ED case against Kapoor began in November 2022, charging him under sections 44 and 45 of the Prevention of Money Laundering Act, 2002. Kapoor is being charged separately by the Central Bureau of Investigation (CBI) for INR 6 billion of alleged fraudulent transfers to a nonbank (DHC 2022). As of December 2023, Kapoor was granted bail by a special court in Mumbai in relation to the ED money laundering charges but remained in custody pending the CBI investigation (Samervel 2023).

The MoF’s draft plan had stated that the moratorium would end after 30 days on April 3 (MoF 2020a). The MoF’s final plan ended the moratorium in 13 days by 6pm on March 18, 2020 (MoF 2020b). Yes Bank would begin to offer its “full suite of services” across all its 1,132 branches that evening (Moneycontrol News 2020).

On July 23, 2020, Yes Bank successfully raised INR 148.7 billion from private investors through an FPO that was not a part of the RBI’s rescue plan (Mint 2020b; YESB 2021). In August 2020, Moody’s upgraded Yes Bank’s long term credit rating to B3 with a stable outlook (YESB 2023b). In March 2021, Yes Bank Chairman Sunil Mehta reported that the bank’s CET1 ratio had improved from 6.3% in 2020 to 11.2% in 2021 (YESB 2021).

In March 2022, Yes Bank reported a successful return to full-year profitability for the first time since the restructuring plan in March 2020 (YESB 2022). In July 2022, J.C. Flowers, a private equity firm, agreed to purchase a stressed loan pool from Yes Bank for INR 480 billion (USD 6.3 billion) (MC 2022).

As of March 13, 2023, the lock-in period for investors in Yes Bank had ended, with those participating in the rescue plan securing 70% returns on market prices. The RBI has asked private investors to sell their stakes gradually to avoid destabilizing the bank (Gopakumar 2023). As of March 31, 2023, Yes Bank’s CET1 ratio has improved to 13.3% from 6.3% in 2020 (see Figure 1) (SBI 2022; YESB 2023b).

In August 2021, India’s Parliament passed an amendment to the DICGC bill, which ensured the payment of the new insurance amount of INR 500,000 within 90 days of any bank being placed in a moratorium. This is in sharp contrast to the eight to 10 years of average settlement period for depositors of stressed cooperative banks in India. Finance Minister Nirmala Sitharaman stated that this legislative change will benefit small depositors (PTI 2021).

The RBI has also updated its guidelines for auditor selection and tenure for banks in India since Yes Bank’s rescue. The RBI reduced the minimum tenure to change auditors to three years, and also introduced restrictions on the ability to audit multiple entities within the same or related corporate groups (Dethe 2023).

The RBI is adopting a technology- and data-first approach to bank supervision to quicken the feedback and supervision process of banks and nonbanks. The RBI’s legacy system of data collection, the Off-Site Monitoring and Supervision System (OSMOS), has lags because of data inefficiencies which extends the supervisory process to almost nine months. The RBI has been considering implementing integrated service platforms to get near real-time reporting from regulated banks and nonbanks (Bansal 2020).

The RBI recently shortened the timeline for regulated entities to submit audited financials to the regulator after the auditor’s approval (Nayak, Bhat, and Goswami 2024).