YES Bank moratorium – crisis, impact on UPI transactions & startups

The Reserve Bank of India (RBI) on Thursday (5 March) imposed a moratorium on YES Bank capping the withdrawal limit to INR 50,000 per bank account till 3 April 2020 which includes savings, current and all other account types.

RBI on Thursday said in a statement…

“In order to protect the interest of the depositors and in public interest, it is necessary to issue certain directions to Yes Bank”

“YES Bank… shall not grant or renew any loan or advance, make any investment, incur any liability or agree to disburse any payment, whether in discharge of its liabilities and obligations, or otherwise enter into any compromise or agreement, or shall transfer or otherwise dispose of any of its properties or assets,”

YES Bank has now appointed the former SBI CFO Prashant Kumar as the administrator for Yes Bank who assured that the deposits of YES Bank customers are safe and there is no need to panic.

“The current moratorium has been brought into effect keeping the depositors’ interest in mind and towards restoring their confidence.  A solution is being worked upon to revive the Bank well before the moratorium period of 30 days ends.”

RBI also affirmed that the bank is allowed to pay salaries to its over 20,000 employees.

YES Bank Moratorium – The Reason Behind

According to RBI, the moratorium is a reconstruction procedure for YES Bank in order to help the financial entity surpass through the steady decline in its financial position. The central bank in a statement on Thursday said…

“The financial position of Yes Bank Ltd. (the bank) has undergone a steady decline largely due to inability of the bank to raise capital to address potential loan losses and resultant downgrades, triggering invocation of bond covenants by investors, and withdrawal of deposits. The bank has also experienced serious governance issues and practices in recent years which have led to steady decline of the bank,”

Exceptions on withdrawing more than INR 50,000

RBI has also highlighted certain exceptions for withdrawing more than INR 50,000 in case either or all of the following conditions are met:

• In case the depositor needs to withdraw money for medical treatment or for anybody dependent on him or her.
• In case the depositor needs money for higher education or any person dependent on him or her seeking higher education in India or abroad.
• In case the depositor needs money for obligatory expenses with marriage or other ceremonies for him/herself or his/her children or anybody dependent on him.
• In case of any unavoidable circumstances or emergencies where the depositor needs to withdraw over INR 50,000

Impact on Startups

YES Bank through its initiatives has backed many startups in India through its initiatives like API banking services for startups, UPI payments, Aadhaar enabled payments (AePS), alternate lending system, fraud analytics, wealth tech and a few especially for fintech startups including YES Fintech initiatives. YES Bank also runs a startup accelerator program that helps back startups by providing funds, loans, events and many other avenues to help them in their expansion plans. Amid this moratorium, all these initiatives and services will remain affected.

Impact on UPI transactions & partners

In accordance with the report published by LiveMint earlier today, the National Payments Corporation of India (NCPI) cancelled YES Bank’s UPI handles as soon as RBI announced the moratorium on the bank.

According to various media reports including the one by LiveMint, YES Bank alone facilitated around 39 percent of the total 1.31 billion UPI transactions passed in January 2020 in India. And with the halt in service due to the cancellation of UPI handles of the bank, is certainly bad news for the payments partner of the bank especially PhonePe and BharatPe followed by Cred, Udaan, Neo Bank, RazorPay, Cashfree, Paytm and more.

PhonePe crises

Amid Yes Bank moratorium, Flipkart-owned PhonePe being the largest payments partner of YES Bank has fallen into a reasonable fear of a decrease in the number of Unified Payments Interface (UPI) transactions.

Earlier today, Sameer Nigam, CEO of PhonePe took on to Twitter to address the customers against the halt in services. Rahul Chari, founder & CTO of PhonePe tweeted on similar lines.