Last Updated on March 6, 2020 at 5:59 pm
A moratorium is a temporary prohibition and in this case, it refers to the Rs. 50,000 withdrawal from each Yes Bank depositor account imposed by RBI. It surprised account holders when there was speculation that SBI and LIC may bail out Yes Bank and stock moved up 27%. SBI has now clarified that they did not negotiate with Yes Bank and no such bailout plan has been sent for govt approval, just an in-house, in-principal interest in an investment. The situation while raising many questions again brings to the fore limitations of deposit insurance and govt intervention in keeping investors calm.
Update 6th March 2020: The RBI has released a draft proposal for the reconstruction of Yes Bank with 49% stake from SBI. These proposals should be given the go-ahead by early next week (possibly 9th March).
Telling a person to stay calm and not panic after delivering bad news is of no use. This is what the RBI circular says: “The Reserve Bank assures the depositors of the bank that their interest will be fully protected and there is no need to panic”. If you tell investors you cannot transact freely, of course, they will panic!
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
🔥Want to create a complete financial plan? Learn goal-based investing? Exclusive access to our DIY tools? Increase your income with your skills? Use this link to enjoy massive discounts on our robo-advisory tool & courses! 🔥
It is not just unfounded panic. It is not as simple as redeeming from SB accounts and FDs. There are EMIs to be paid to external lenders, insurance premiums to be paid, salaries to be paid etc.
The govt has made it clear to the people that they do no want Banks to fail. Whether this is a healthy stance or not is eminently and eternally debatable. Since it does not want banks to fail, they should also make sure depositors do not panic. This is more important than the assurance, “your money is safe”. Money should not only be safe but also liquid!
The panic that leads to a bank run (sudden spike in redemptions) and panic that results from a moratorium or restrictions (as done with PMC bank) preventing a bank run is not very different. Clearly the govt had the means and ways to handle this better.
They should have first arranged the bailout, announced it and then if necessary placed the temporary restrictions. This would have significantly reduced panic and distress. Experts may correct this layman’s opinion if the situation could have been handled better since the govt (via RBI) was aware of Yes Bank’s inability to arrange a bailout themselves.
The string of restrictions on co-operative banks and now this moratorium must be enough warning to investors that deposit insurance of Rs. 1 lakh or Rs. 5 lakh (from April 2020) is of little use in most practical situations.
A business model that offers significantly more interest on savings bank accounts should have been suspiciously from day one. At the very least concentration risk should have been avoided. One might say this is hindsight but it is merely common sense.
What should Yes Bank investors do? Well, what can they do? Nothing much other than making sure deposits into the account are avoided and pray the matter is resolved within this financial year.
This episode has exposed the risk associated with the wheels of the system. The govt should do more to reduce fear and panic. Assurances given after imposing restrictions are not good enough.
Use our Robo-advisory Tool to create a complete financial plan! ⇐More than 3,000 investors and advisors use this! Use the discount code: robo25 for a 20% discount. Plan your retirement (early, normal, before, and after), as well as non-recurring financial goals (such as child education) and recurring financial goals (like holidays and appliance purchases). The tool would help anyone aged 18 to 80 plan for their retirement, as well as six other non-recurring financial goals and four recurring financial goals, with a detailed cash flow summary.
🔥You can also avail massive discounts on our courses and the freefincal investor circle! 🔥& join our community of 8000+ users!
Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds, and ETF screeners, as well as momentum and low-volatility stock screeners.
You can follow our articles on Google News
We have over 1,000 videos on YouTube!
Join our WhatsApp Channel
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalised investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
About The Author
Dr M. Pattabiraman (PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over 13 years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), LinkedIn, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free, AUM-independent investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,500 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Increase your income by getting people to pay for your skills! ⇐ More than 800 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner seeking more clients through online visibility, or a salaried individual looking for a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you. (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting a side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media organisation dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact Information: To get in touch, please use our contact form. (Sponsored posts or paid collaborations will not be entertained.)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is designed to help you ask the right questions and find the correct answers. Additionally, it comes with nine online calculators, allowing you to create custom solutions tailored to your lifestyle. Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is designed for young earners to get their basics right from the start! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth exploration of vacation planning, including finding affordable flights, budget accommodations, and practical travel tips. It also examines the benefits of travelling slowly, both financially and psychologically, with links to relevant web pages and guidance at every step. Get the PDF for Rs 300 (instant download)