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Focus: GS-III Indian Economy, Prelims

Why in news?

  • The government has put private sector lender Yes Bank under moratorium till April 3 and capped deposit withdrawal at ₹50,000 after severe deterioration of the bank’s financial position.
  • The decision was taken by the government after an application from Reserve Bank of India (RBI).

Why was it put under moratorium?

  • The financial position of the bank deteriorated as the it failed to raise capital to address loan losses which resulted in rating downgrades and triggered invocation of bond covenants by investors, and withdrawal of deposits.
  • RBI said – The bank has also experienced serious governance issues and practices in the recent years which have led to steady decline of the bank.

What lies ahead?

  • RBI found – In order to protect the interest of the depositors and in public interest, it is necessary to issue certain directions to YES Bank.
  • RBI said it will explore and draw up a scheme in the next few days for the bank’s reconstruction or amalgamation.

What is Moratorium?

Definition of moratorium- A legally authorized period of delay in the performance of a legal obligation or the payment of a debt, a waiting period set by an authority, a suspension of activity.

Powers of RBI

  • Finance ministry has listed powers that central bank enjoys under Banking Regulation Act, 1949, under Banking Companies (Acquisition & Transfer of Undertakings) Acts of 1970 & 1980 (Bank Nationalization Acts) & State Bank of India Act, 1955:
  • RBI maintains central fraud registry & banks report all frauds, involving amount above Rs. 1 lakh, to RBI.
  • Banking regulation Act, 1949 is legislation aimed at regulating & supervising banking companies.
  • Banking company is defined in section 69 (c) of that Act as ‘any company’, which transacts business of banking in India. State Bank of India & nationalised banks which are PSBs, are not companies, but corporations formed by statutes.

Under Provisions of Banking Regulation Act, 1949, RBI Can:

  • Inspect bank & its books & accounts
  • Examine on oath any director or other officer of bank
  • Cause scrutiny to be made of affairs of bank
  • Give directions
    1. in public interest
    2. in interest of banking policy
    3. in interest of depositors
    4. in interest of bank
    5. to secure proper management of bank
  • Call for any information of account details
  • Determine policy in relation to advances by bank
  • Direct special audit of bank
  • Direct bank to initiate insolvency resolution process in respect of default, under provisions of Insolvency & Bankruptcy Code, 2016
  • Issue directions to banks for resolution of stressed assets
  • Direct changes in management of bank
  • Caution or prohibit banks in particular against entering into any particular transaction or class of transactions, & generally give advice to any bank
  • Give assistance to any bank by means of grant of loan or advance
  • Direct banks to call meeting of its directors for purpose of considering any matter relating to or arising out of affairs of bank; or require officer of bank to discuss any such matter w/officer of RBI
  • Appoint one or more of its officers to observe manner in which affairs of bank or of its offices or branches are being conducted & make report thereon

RBI’s Important Publications (half yearly)

  1. Financial Stability Report
  2. Monetary Policy Report
  3. Report on Financial Review
March 2024