Yes Bank couldn't raise capital for its bad loans — the RBI seized it in a night

Yes Bank was one of India's larger private-sector banks. Over the years before 2020 its financial position, in the regulator's words, underwent a steady decline — largely because it could not raise the capital it needed to cover potential loan losses and the downgrades that followed. As investors invoked bond covenants and depositors began to withdraw, the bank faced a regular outflow of liquidity. The Reserve Bank of India also cited serious governance issues and practices.

On 5 March 2020 the Reserve Bank concluded it had no alternative but to act. It applied to the central government, which imposed a moratorium on Yes Bank under section 45 of the Banking Regulation Act, 1949, for a period of thirty days, running to 3 April 2020. Depositors were temporarily restricted in what they could withdraw, and the bank was effectively taken out of the hands of its management.

The regulator moved quickly to calm the system. The Reserve Bank assured depositors that their interest would be fully protected and that there was no need to panic, and within a day it had published a draft scheme of reconstruction, sent to Yes Bank and to the State Bank of India for their comments. The plan rebuilt the bank around an SBI-led infusion of capital rather than letting it fail.

Yes Bank is a textbook case of a bank that ran out of time to fix its balance sheet. The decline was slow and visible — bad loans, failed capital raises, governance failures — but the end was sudden, because a bank that cannot raise capital against its losses is always one downgrade away from a run.