India: Yes Bank Restructuring, 2020

Yes Bank was suffering from liquidity outflows in the second half of 2019 owing to a combination of deposit withdrawals, invocation of pledged shares, losses from extraordinary credit provisions, and overexposure to stressed sectors like power and infrastructure. In December 2019, Yes Bank reported a Common Equity Tier 1 capital ratio at 0.6%, far below the Reserve Bank of India (RBI) mandated levels, and a quarterly loss of 185 billion Indian rupees (INR; USD 2.5 billion). In early March 2020, the RBI and the Ministry of Finance announced a restructuring plan for India's fourth-largest private bank, Yes Bank, to prevent a run on the private banking system and preserve financial stability. The rescue plan comprised placing the bank in a moratorium, replacing the board, appointing an interim administrator, limiting withdrawals, providing capital injections, and extending a liquidity facility for INR 600 billion. The RBI helped engineer the public and private participation in Yes Bank's ad hoc capital injection of INR 100 billion with a three-year lock-in period. The tax law was amended to allow capital gains tax exemption for all new investors participating in Yes Bank's capital injection. In the three years since the announcement of the rescue plan, Yes Bank's liquidity outflow has stopped, as the deposit base has grown to USD 27 billion, and the bank's new investors have secured returns of 70% on the market value of their investments.