What happens to Yes Bank's corporate clients & employees now?

In the event of distress mergers, there is a possibility that the acquiring entity may seek to cut cost and look at trimming overlapping functions in the target bank

March 06, 2020 / 11:07 AM IST
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On March 5, the Reserve Bank of India (RBI) ended the prolonged uncertainty on the future of private sector lender Yes Bank by imposing a month-long moratorium and restricting certain business transactions.

The central bank assured that these actions are being taken to protect the interests of depositors.

Despite the assurance, there has been some amount of panic visible among customers who, according to reports, had begun queuing up before ATMs to withdraw their money from March 5 itself.

The moot question is how will the crisis at Yes Bank and RBI action impact its corporate clients and employees now?

To catch all live updates on this developing story, click here....

Fate of its employees
It is too early to say. In the event of distress mergers, there is a possibility that the acquiring entity may seek to cut cost and look at trimming overlapping functions in the target bank. This may involve letting some employees go. But there is no need to panic at this stage as the call is yet to be taken by the acquirer.

Impact on its corporate customers
More clarity is required from the new management. But senior bankers said those companies, which have a line of credit from Yes Bank or have bank guarantees, may face difficulties. Bankers told Moneycontrol that corporate clients and SMEs (small and medium enterprises) should seek alternate options to avoid liquidity problems.

“In a normal scenario, the bank has to honour its commitments on the guarantees that it has issued. Breaching this will permanently damage its reputation in the market. But in Yes Bank’s case, what will happen is a question,” said a former senior banker. 

Impact on retail customers

RBI has capped withdrawals at Rs 50,000 per account till April 3. This will impact certain category of customers, for example retirees, who may have deposited their entire life savings in the bank and are drawing monthly interest payments.

Regular banking transactions are likely to remain unaffected including fund transfer, cheque clearances and EMI debits. But all cash outgoes will be within the Rs 50,000 limit.   

Read | Yes Bank: Salary account, EMI, fund redemption frozen? Here’s what you should do immediately

Will the withdrawal limit be raised?
In the case of Punjab and Maharashtra Cooperative Bank, the initial withdrawal limit was Rs 1,000. This was gradually increased to Rs 1 lakh. In the case of Yes Bank too, RBI may relax restrictions after a while when more clarity emerges on the bank’s future. 

Will the deposit insurance scheme come into play?
The deposit insurance scheme ensures that a customer receives up to Rs 5 lakh from the Deposit Insurance and Credit Guarantee Corporation  in the event of a total collapse of a bank. In Yes Bank’s case too, this provision will be triggered if all efforts to revive the bank fails. But bankers said it is highly unlikely that things will worsen to that stage. 

What happens in the event of a merger with another bank?
This will be good news for Yes Bank's customers. Takeover by a bigger bank, like State Bank of India, will ensure that every penny of depositors’ money in Yes Bank is safe and normalcy is restored. The acquiring bank will take care of the commitments of the acquired entity.

Dinesh Unnikrishnan
first published: Mar 6, 2020 11:07 am

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