The Reserve Bank of India (RBI) is preparing to offer a special liquidity window for Yes Bank as urgent financial support to the troubled private sector lender and soothe the frayed nerves of depositors, three government sources with direct knowledge of the matter told…moneycontrol
Considering the peculiar circumstances surrounding this case, the RBI is likely to extend a short-term loan/line of credit to Yes Bank of around Rs 8,000-Rs 10,000 crore to reduce panic among depositors and ensure sufficient funds for permitted withdrawals,” said one source. “As it is a special case, the interest component will be lesser and final touches are being given to this plan,” they added.
Offering liquidity to a distressed entity, though extremely rare, is permissible under Section 17 of the RBI Act, according to two of the sources. All the three people Moneycontrol spoke to did not want to be named.
Another source said this is the banker’s bank concept and as a central bank, the RBI can take this step under exceptional circumstances. “This not to be confused with negotiations on picking up an equity stake in Yes Bank which are happening simultaneously.”