YES Bank crisis: Paying loan? Shift ECS mandate to a nationalised bank

Customers, who had their entire liquid money parked in a YES Bank savings account, are the ones who will experience hardship.
Coming soon after the Punjab and Maharashtra Co-operative (PMC) Bank scam, the events at YES Bank have left deposit holders a shaken lot. However, they should take heart from the fact that the regulator has acted very rapidly in this case, so their troubles may end soon. But they, too, need to take a few steps to contain the adverse fallout of this development.   


The Reserve Bank of India (RBI) superseded the board of YES Bank and imposed a month-long moratorium on it. The moratorium period will last from March 5, 2020, until April 3, 2020, during which each depositor will be allowed to withdraw a maximum of Rs 50,000, even if he holds multiple accounts. The good news is that the central bank has already come up with a restructuring plan for the bank. State Bank of India will infuse Rs 2,450 crore in lieu of a 49 per cent stake.


Customers, who had their entire liquid money parked in a YES Bank savings account, are the ones who will experience hardship. Bank account holders are asking whether they need to make changes to the way they manage their accounts. The solution, say financial advisors, is to maintain at least two accounts. “The norm we are witnessing is that withdrawal restrictions are placed as soon as a bank gets into trouble. If you have a second account, you can use money from it till the troubled bank stabilises,” says Arvind Rao, chartered accountant, Securities and Exchange Board of India-registered investment adviser and founder, Arvind Rao & Associates. He adds that one of the two accounts should be with a nationalised bank. “Since the government has at least a 51 per cent shareholding in public-sector banks, it is unlikely to allow the situation to deteriorate to the extent where a moratorium has to be imposed,” adds Rao.


If your mutual fund systematic investment plans (SIP) were linked to a YES Bank savings account, you need to act. “Payments should go through for SIPs of less than Rs 50,000. But if your SIPs are for a larger amount, you should give the electronic clearance service (ECS) mandate for another bank account,” says Kaustubh Belapurkar, director-manager research, Morningstar Investment Adviser India.


Credit card dues and equated monthly instalments (EMIs) of loans could also pose a problem. “Delay or non-payment of credit card bills or loan EMIs will attract penalties from your lender. Your credit score could also come down significantly, which could impact your future loan applications,” says Naveen Kukreja, chief executive officer and co-founder, Again, the answer lies in transferring your ECS mandate to another bank at the earliest.


The hit to your credit score may not be big if you act fast. Says Parijat Garg, a credit scoring expert: “A 10-15-day delay in repayment of home loan EMI will at the most affect your credit score by 10-30 basis points.”


Insurance companies offer multiple channels for payment of premiums. “Customers can pay their premiums using any one of the channels like debit or credit card, internet banking, wallets, etc,” says Sanjeev Chopra, chief financial officer and executive director, IFFCO-Tokio General Insurance. He adds that during the moratorium period, his company will check with customers whether they would like to receive their claims payment in another bank’s account.


Life insurance covers come with a grace period. “Your risk cover will continue until the end of the grace period, which is 15 days for monthly mode policies and 30 days for other modes,” says a spokesperson at Bharti AXA Life Insurance.


The insurer will waive the interest applicable on delayed payments. It has also requested the regulator to allow extension of the grace period to YES Bank customers.


If you haven't sold Yes stock, then hold on
  • The YES Bank stock has oscillated between a 52-week low of Rs 5.65 and a high of Rs 286. It closed at Rs 21.25 on Monday
  • The stock is down 92.6 per cent from its 52-week high
  • An investor who has been holding the stock for a while and has not sold it yet should continue to do so as most of the news has already got factored in
  • A reconstruction plan is in place, so things are moving from a zone of uncertainty to certainty
  • Those with high-risk appetite may enter the stock with at least a two-year horizon


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