What the Yes Bank crisis means for its customers and investors

The government's and Reserve Bank of India's (RBI) decision to restrict withdrawals to up to ₹50,000 until 3 April from Yes Bank Ltd came as a shock for depositors, borrowers and investors alike, even though the writing had been on the wall for some time. RBI discovered governance issues in the bank but had been monitoring the situation for close to a year, which is why the moratorium came as a surprise to customers. "Though there was a lot of negative news surrounding Yes Bank for the last few months, I didn't withdraw my money. I thought the bank is too big to fail. Even if it is in a crisis, the government would come to its rescue," said Siliguri-based Priyanka Mudgal, 36, who opened an account with the bank two years ago. She queued up outside a Yes Bank ATM a day after the moratorium was announced, but realized that it was not dispensing cash.

Assurances from the government and RBI has done little to assuage her fears for now. On 6 April, RBI released a draft for the reconstruction of Yes Bank. The draft mentioned that State Bank of India has expressed its willingness to invest in Yes Bank and participate in its reconstruction. RBI governor Shaktikanta Das also pledged to act swiftly to resolve the crisis. On the same day, finance minister Nirmala Sitharaman advised Yes Bank customers not to panic. "Our government is committed to ensure that depositor's interest is completely safeguarded... RBI has assured that Yes Bank's reconstruction plan will come into play within the moratorium period so that depositors are not going to be troubled," she said.

Experts said the move would protect the interests of small depositors. "It's important that customers do not panic at this stage but wait for further clarifications," said Adhil Shetty, CEO, BankBazaar. According to Harsh Roongta, a Mumbai-based Sebi-registered financial adviser, "Small depositors (who have up to ₹5 lakh in deposits) should not worry or act in desperation."

However, bank customers and investors would need to take certain steps to contain the immediate damage.

Immediate Trouble

The moratorium is effective 5 March, and typically, it is in the first week of a month that most people have scheduled payments and deductions such as equated monthly instalments (EMIs), SIPs, fees, rent and utility bills.

Gurugram-based Harpreet Hajela, 37, who has a salary account with Yes Bank, has found herself in a difficult situation. "My monthly house rent, ₹20,000, is yet to get debited. Even my insurance premium gets debited in March. Come April, I'll have to pay school fees for my children which is over ₹50,000," said Hajela, a school teacher.

Hajela, who has all her funds parked in her Yes Bank account, visited multiple ATMs but none of them dispensed money. She also tried using digital banking but was unable to transfer funds to her other bank accounts.

Mudgal's family has a total of four accounts with Yes Bank and a cumulative deposit of close to ₹14 lakh. Her SIPs are due on 10 March. "But I am more worried about my FDs worth over ₹5 lakh, given that the deposit insurance is only ₹5 lakh," she said.

"Those who have a large amount stuck in such a frozen account should review the family's expenses. They might need to liquidate some investments if there is no emergency fund in place," said Arnav Pandya, founder, Moneyeduschool, a financial literacy initiative. He added that this should be the trigger to ensure that your money is spread across multiple bank accounts.

Customers Need To Act

According to the moratorium, you can withdraw up to ₹50,000 across savings, deposit and current accounts in Yes Bank. Under special circumstances, with the approval of the competent authority, you can withdraw up to ₹5 lakh or the remaining balance in the account, whichever is lower. "The cap will be applicable on all the withdrawals and deductions from Yes Bank accounts," said Aditya Mishra, founder and CEO, Switchme.in, digital home loan facilitator.

Change ECS and banking mandates: The first thing you need to do is change the electronic clearing service (ECS) mandates for EMIs, SIPs and other payments tied to your Yes Bank account. Pandya said the ECS mandates should be changed for all the investments so that dividends or redemptions do not get locked in.

"It's going to be a task to get everything changed now. But luckily for me the balance amount is less than ₹5 lakh," said Bengaluru-based Ramaswamy Balasubramanian, 68, who has been banking with Yes Bank for over 14 years.

Make alternative arrangements: As you change the mandates, you'll have to make alternative arrangements if your EMIs or other payments are due to be debited from the Yes Bank account. Several fund houses have reached out to customers through social media asking for alternative bank account details.

Remember that if your EMI payment gets blocked, it may impact your credit score. "There is not much to do at this stage but inform the credit bureau through the bank later to get it rectified," said Raj Khosla, managing director, MyMoneyMantra.com, a financial services marketplace.

If you have an upcoming insurance premium to be paid, don't panic. Insurance companies always provide a grace period within which you can pay the premium from another account. "In the case of life insurance, this grace period is 30 days. Clarity from the insurance regulator is awaited. Keep in mind that even if the policy lapses, it can be reinstated within five years for Ulips and three years for traditional and term plans," said Vignesh Shahane, MD and CEO, IDBI Federal Life Insurance Co. Ltd.

De-link account from apps: If you had linked your Yes Bank account with payments apps and other service-based apps such as Swiggy and Uber, you will need to de-link the accounts but the process could be cumbersome.

Depositors took to social media to voice their concerns about not being able to make UPI transactions through payments apps such as PhonePe. The app later tweeted from its official handle, Phonepe Support: "Yes Bank has been placed under moratorium by RBI. We are all hands on deck to get things back to normal. We will be back soon; stronger than ever."

Talk to your HR: Those who have salary accounts with the bank are likely to be hit the worst. Given the grim situation, the HR departments of various companies will likely provide alternatives to employees so that future salaries are not blocked.

Impact On Investors

About 32 mutual fund schemes are exposed to Yes Bank debt with a total exposure of ₹2,848 crore. Many of these bonds are AT 1 (Additional Tier 1) bonds which are designed to absorb losses when the capital of the bank falls below a certain level. In a note to distributors, Nippon India Mutual Fund, which has the largest exposure to Yes Bank, said that it has written off its entire exposure to the bank. Inflows into Nippon schemes with Yes Bank exposure have also been restricted to ₹2 lakh per investor.

Investors should factor in the likely capital erosion into their financial goals. "Investors have no choice but to stay put. It is too late to exit the affected schemes. Mutual funds are likely to write off or side-pocket exposures to Yes Bank," said Prateek Pant, head, products and solutions, Sanctum Wealth Management Pvt. Ltd.

It's best not to panic in such a situation, but get the basics in place. Watch this space for further developments.