The central bank has unveiled a draft reconstruction scheme on March 6 for the capital-starved Yes Bank, under which State Bank of India is expected to buy up to 49 per cent in the country’s fourth-largest private lender.
Global rating agency S&P on Monday said a quick resolution of the Yes Bank crisis will keep India’s banking sector contagion at bay but there could be a possibility of wider economic pain in the country as credit markets tighten. Also, any delay in, or uncertainty about, the implementation of the central bank-anchored resolution plan may roil markets, it said, calling for better governance standards at banks.
The RBI on March 5 superseded Yes Bank’s board for 30 days on ground of a “serious deterioration” in its financial position and the absence of a viable revival plan. On the same day, the government imposed a moratorium on the bank up to April 3. During this period, the ordinary withdrawal by a depositor of Yes Bank is capped at Rs 50,000.
The central bank then unveiled a draft reconstruction scheme on March 6 for the capital-starved Yes Bank, under which State Bank of India is expected to buy up to 49 per cent in the country’s fourth-largest private lender.
“Quick resolution of Yes Bank’s insolvency will keep bank-sector contagion at bay, though it poses pain for investors in bank hybrid securities. As credit markets tighten, we also see a possibility of wider economic pain in the country,” S&P Global Ratings said.
“Many mutual funds hold Yes Bank securities, including subordinated debt and AT-1s. A depreciation in the value of these instruments would hurt credit funds, potentially triggering capital outflows. This could widen spreads and drain the credit available to lower-rated entities,” it added. The report said the government has historically not allowed commercial banks to fail and has in the past swiftly stepped in to address trouble. —FE
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