Yes Bank bailout: Pain for private banks, gain for PSU banks

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April 14, 2020 1:38 PM

The Yes Bank crisis, coupled with the coronavirus outbreak, may have some dire impact on India’s smaller private sector banks.

Yes Bank, Last month, RBI had put Yes Bank under a moratorium and had superseded its board in the wake of rising bad loans.

The Yes Bank crisis, coupled with the coronavirus outbreak, may have some dire impact on India’s smaller private sector banks, while at the same time, leading to gains for PSU banks. While what unfolded in India’s fourth largest private lender Yes Bank has undermined the confidence of depositors in private sector banks, the intensifying coronavirus issue is not helping either. “The Yes Bank event undermines depositor confidence in private sector banks,” rating agency Moody’s said in a report, adding that people continue to trust PSU banks more, aided by a perception of strong government protection.

This may lead to private sector banks losing their deposits to public sector banks, which will weaken the funding profiles of the former, the report added. Last month, RBI had put Yes Bank under a moratorium and had superseded its board in the wake of rising bad loans. Yes Bank’s case highlights that “authorities will only rescue a private sector bank after imposing a moratorium, which effectively constitutes a default as it prevents the bank from making timely payments to its depositors and creditors,” Alka Anbarasu, Moody’s Vice President and Senior Credit Officer, said in a statement. While RBI stepped in to help the troubled bank, Yes Bank’s revival was the first rescue of a large private sector bank in India since the collapse of Global Trust Bank in 2004, Alka Anbarasu added.

Many private sector banks have already reported a sink in deposits in the March quarter when the Yes Bank crisis was reported. However, RBI has reiterated that money in all the banks is safe. On the other end, India’s public sector banks (PSBs) get strong government support, as they play a crucial role in maintaining India’s systemic stability, Moody’s report on ‘Yes Bank saga places India’s financial system on alert’ said. No PSB has defaulted in the country in the last 15 years. PSB’s collectively account for about 70% of banking system assets.

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