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SBI May Buy 49% Stake in Yes Bank Under Resolution Plan, Government Restricts Withdrawal Limit from Yes Bank at ₹50,000

Professor of Financial Economics and Part-time Value Investor, Transfin.
Mar 8, 2020 3:03 PM 6 min read

Government restricts withdrawal limit from Yes Bank at ₹50,000 ($679). SBI may buy 49% stake in Yes Bank under resolution plan. Third-party motor insurance premium rates likely to witness a spike. Union Cabinet approves the merger of 10 public sector banks into 4. Fed cuts rates by half a percentage point to combat coronavirus slowdown.




Government restricts withdrawal limit from Yes Bank at ₹50,000 ($679).

Withdrawal Restricted

The Government has imposed a month-long moratorium on Yes Bank, capping the withdrawal limit from the private lender at ₹50,000 ($679) for the next one month.


Yes Bank cannot make in aggregate, payment to a depositor of a sum exceeding ₹50,000 ($679) lying to his credit, in any savings, current or any other deposit account till April 3rd, said a Government notification.


During this period, the bank will not be able to grant or renew any loan or advance, make any investment, incur any liability or agree to disburse any payment.


RBI will, however, relax the withdrawal limit in the event of medical emergencies, higher education fees or marriage expenses - up to a cap of ₹5L ($6,792). 


The RBI in consultation with the Government has superseded the Board of Directors of Yes Bank for a period of 30 days, citing “serious deterioration in the financial position of the Bank." [Livemint]


"Resolution will be swift, 30 days is an outer limit," says RBI Governor. 

Don't Panic, Keep Calm

RBI Governor Shaktikanta Das has said that Yes Bank resolution will be done swiftly. "30 days which we have given is the outer limit. You will see a very swift action from RBI," he noted. 


"The decision is taken at a larger level, not at individual entity level, the move is aimed at ensuring safety of financial system," he added. [BS]


SBI may buy 49% stake in Yes Bank under resolution plan.

Half Full Half Empty

The RBI has announced a restructuring plan for Yes Bank, and as per the plan, India's largest lender SBI will take a 49% stake in the distressed lender.


Finance Minister Nirmala Sitharaman has said the restructuring plan would be implemented within 30 days.


The RBI has sharply increased Yes Bank's authorised share capital, enabling Yes Bank to receive a cash injection following its failure to raise enough money to meet regulatory requirements.


Based on the details in the RBI's statement, analysts have estimated that the SBI-led consortium would have to invest at least ₹2,500cr ($339.10m) to buy 49% stake in Yes Bank. [BS]




Third-party motor insurance premium rates likely to witness a spike.

A Bigger Hole in the Pocket

The Insurance Regulatory and Development Authority of India (IRDAI) has released a draft circular proposing an increase in insurance premium rates for 2020-21, following which third-party motor insurance premium for cars, two-wheelers, goods carriers, buses, including school buses, and other automobiles are likely to increase.


Among private cars, the premium could go up by an average of 5%. However, for cars above 1,500cc, the premium rates have been left unchanged at ₹7,890 ($106).


When it comes to two-wheelers, the premium rates could go up by 2.3%-10.7% depending on the engine capacity. In this category, there is a premium increase from 75cc and below to 350cc and above.


In the 75-150cc category, the premium is proposed to be hiked from ₹752 ($10.15) per annum to ₹769 ($10.38).


Push for Green

IRDAI has proposed a discount of 15% for the electric vehicle category TP premium. The regulator said it will incentivise usage of environmental friendly vehicles. Further, a discount of 7.5% on motor TP premium for hybrid electric vehicles is also proposed. [The Hindu]



SC lifts ban on cryptocurrency trading.

Light at the End of the Tunnel

The Supreme Court of India today overturned the RBI's 2018 circular which barred trading in cryptocurrency.


In an April 2018 circular, the RBI had barred banks and other financial institutions from facilitating “any service in relation to virtual currencies”.


Since then, multiple startups engaged in cryptocurrency trading in India have shut shop. 


The SC has overruled the RBI's circular on the grounds of disproportionality, following a petition by a group, including the trade body Internet and Mobile Association of India, which had challenged the Central Bank’s circular, in part, arguing that India should look at most other nations that are not only allowing cryptocurrency trading, but have moved to launch their own virtual currencies. [ToI]


RBI to seek review of Supreme Court order on cryptocurrency. 

Credit Crisis

As per sources, the RBI is planning to file a review petition in the Supreme Court (SC) against the quashing of its April 2018 circular, which barred banks and other financial institutions from facilitating “any service in relation to virtual currencies”.


The RBI fears that the decision of the SC could pave the way for trading in virtual currencies and put the banking system at risk. [ET Policy]



The SC had earlier this week overturned the circular, allowing cryptocurrency trading in India, and the move has instilled in entrepreneurs a sense of confidence, betting on the re-emergence of the cryptocurrency segment with support from the investor community. 


Telcos to be allowed to defer payment of future spectrum auctions.

Brief Respite from Tragedy

On Wednesday, the Government said mobile service providers could defer future spectrum auction payments.


“Considering the stress in the sector, the Government has given an option to the Telecom Service Providers (TSPs) to defer payment of the spectrum auction instalments dues for 2020-21 and 2021-22, either for one or both years,” Minister of State for Communications Sanjay Dhotre informed the Lok Sabha.


This could provide some amount of relief to the Telecom Industry, which has been reeling under the effects of mounting debt and dues, facing increased tariffs and potential closure altogether. [BS]



Union Cabinet approves the merger of 10 public sector banks into 4.

Green Light

Yesterday, the Union Cabinet approved the consolidation of 10 public sector banks (PSBs) into four entities.


“The amalgamation is being done so that customers are able to reap the benefit of larger banks being scaled up and more fund being available for credit," Finance Minister Nirmala Sitharaman told reporters.


Presently, India has 18 PSBs, down from 27 in 2017. After the consolidation, the number will come down to 12.


“Banks are fully on board and this will be effective from April 1st," Sitharaman said. “To a large extent, I am convinced that the banks are on course. They have no issues carrying forward with the merger activity...core interest for banking, customers have been kept in mind." [Livemint]


NRIs permitted to own up to 100% stake in Air India. 

For those Away from Home

Here’s something else the Union Cabinet has done: non-resident Indians (NRIs) will now be allowed to acquire 100% of Air India.


“Today’s decision on Air India is one milestone decision where NRIs who are Indian citizens will get permission to invest 100% in the airline,” Information and Broadcasting Minister Prakash Javadekar told reporters in a briefing.


Before this, NRIs could own only up to 49% of the national carrier. The Government has put 100% of Air India up for sale. [ET Aviation]



Fed cuts rates by half a percentage point to combat coronavirus slowdown.

Desperate Times, Desperate Measures

The Federal Reserve has announced an emergency rate cut – its first since December 2008 – of half a percentage point in response to the growing economic threat from the coronavirus.


“The coronavirus poses evolving risks to economic activity,” the Fed said in a statement. “In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate.”


At a news conference later, Chairman Jerome Powell said the Fed took action after officials saw the coronavirus was having a material impact on the economic outlook. [CNBC]


Tik Tok set to hire its first Chief Information Security Officer. 

Make Hay While the Sun Shines

Popular short-video app Tik Tok is set to hire its first Chief Information Security Officer in a bid to reassure regulators and lawmakers that it is safely guarding its users’ data.


The move comes at a time when US regulators are monitoring the app for potential national security threats, considering that it is owned by Chinese conglomerate Bytedance.


TikTok is hiring cyber security expert Roland Cloutier from payroll processing company Automated Data Processing for the newly created role. [WSJ]


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