Yes Bank moratorium leads to outage in financial system

By: |
March 7, 2020 7:36 AM

Even as Yes Bank customers discovered they could neither withdraw money using debit cards nor could they transact through digital channels on Friday, the worst impact was felt by consumers and merchants using Unified Payments Interface.

Yes Bank, yes bank crisis, yes bank moratorium, yes bank digital transactions, yes bank UPIFintechs took to social media to reassure their merchant partners.

A day after the banking regulator imposed a cap on withdrawals from Yes Bank, the move sent shock waves through the payments and settlement system, with consumer digital transactions failing, fintech firms moving their settlement accounts to other banks and mutual funds stopping redemptions into the accounts of investors. In FY19, Yes Bank facilitated 432 million digital transactions and is one of the largest players integrated with the UPI system.

Even as Yes Bank customers discovered they could neither withdraw money using debit cards nor could they transact through digital channels on Friday, the worst impact was felt by consumers and merchants using Unified Payments Interface with Yes Bank as the nodal bank.

It is the acquiring bank for Unified Payments Interface (UPI) payments for as many as 21 third-party apps, including Angel Broking, Make My Trip, Cleartrip, Airtel, Swiggy, Redbus, Flipkart, Jabong, Myntra, PVR, PhonePe, Microsoft Kaizala and ShareiT. PayTM Payments Bank also announced that it would restrict transaction settlements, including UPI, into Yes Bank accounts to safeguard their user money.

Most industry players expressed hope that the systems would be up and running within a few hours as the National Payments Corporation of India (NPCI) and Yes Bank worked into the wee hours of Friday to help fintech service providers open escrow and settlement accounts with other lenders, such as IndusInd Bank and ICICI Bank.

Even as salvage operations continued, the risk of merchants facing settlement defaults remains. Naveen Surya, chairman, Fintech Convergence Council and chairman emeritus, Payments Council of India (PCI), said, “An escrow account for PPIs (prepaid payment instruments) and nodal account for merchant aggregators is where the money from the consumer comes in and that works like a current account. There may be some money in those accounts from transactions over the last couple of days. That gets stuck and creates a working-capital issue for the payment service provider. It may also have impact on compliance for timely settlement for these specific cases till a new banking service is established by these players.”

If settlement does not happen on time, it amounts to a violation of the licensing terms for some players. However, such a scenario may not arise as most payment players have cash buffers to meet payout requirements for a few days.

Fintechs took to social media to reassure their merchant partners. PhonePe, which is among the largest players in the UPI space, assured its users of services being up and running in a matter of hours. Sameer Nigam, founder and CEO, PhonePe, tweeted, “Dear @PhonePe_ customers. We sincerely regret the long outage. Our partner bank (Yes Bank) was placed under moratorium by RBI. Entire team’s been working all night to get services back up asap. We hope to be live in a few hours. Thanks for your patience. Stay tuned for updates!” Later in the day, the company said that merchant settlements had resumed.

Payment gateway player Razorpay called for its merchants to get in touch with them for new accounts. “In case your money movement has been disrupted because of the recent events surrounding #YesBank, please get in touch with us and we will ensure your business operations get back on track at the earliest,” the company tweeted.

Meanwhile, mutual fund houses are actively reaching out to investors to facilitate a change in their bank mandate so that their systematic investment plans (SIPs) do not come unstuck. According to a spokesperson at ICICI Prudential Asset Management Company (AMC), the fund house has already reached out to investors to help them change the bank mandate. The AMC is also working to facilitate this change online since it will be faster than the offline mode. It is reaching out to all investors having bank mandates with Yes Bank for redemptions and expediting the process of bank change mandate on priority to credit the redemption amounts today or by the next working day and also, provide an alternative of releasing the redemption amount through cheques for investors who do not have any alternate bank account or need to open one.

Jimmy Patel, CEO, Quantum Mutual Fund, said that the fund house was holding back redemptions that were supposed to happen today and asking investors to share different bank account details. “We are also writing to investors with accounts in Yes Bank to change bank mandates. For those with SIPs, changing bank mandate requires a different process and they are being advised on switching these accounts to different bank accounts,” Patel said, adding, “Many AMCs, we also had an Insta redeem funds that allow investors in these liquid funds to redeem amounts within half an hour. This facility will be suspended till we tie up with other banks.”

Nithin Kamath, founder and CEO at discount broking firm Zerodha, said that the company has cancelled all fund withdrawal requests made by clients to their Yes Bank accounts so that the money does not get blocked. “Please change, if your primary bank account is Yes, to any other and withdraw the funds,” Kamath tweeted.

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