Indian Banks and Systematic Risks: A case of YES BANK

Imagine how much brainpower went into how 2020 would be like, how markets would be like. And then corona said: “Well, bro, here I am”! AND Yes Bank just followed the lead!

The YES BANK problem didn’t emanate instantly for such a response. Everyone had a sense of what’s happening much ahead of the fall, especially the FM at the least! Why would the govt ask LIC and SBI to bail out Yes Bank now, when the markets are already nervous, the rupee is sliding, and the global investor is wary.

RBI has put Yes Bank on the moratorium. There’s a limit of 50K on money withdrawal. You can deposit any amount in banks but cannot withdraw. How are you going to convince that money is safe in India? We saw the same thing happening with PMC bank.

The credibility of Indian banks itself is questionable rn. This will result in short term panic; the credit markets would freeze again. There’ll be another round of NBFC and bank stress. Yes Bank episode will put definite pressure on the depositors of other banks too. Just being a scheduled bank and monitored by RBI would not be considered to be adequate safeguards by the depositors. This will add to the systemic risk premium on the cost of deposits now.

There could have been a better way to tackle this.

The government, on the one hand, talks of privatization & free markets while asking PSUs to bailout?! And then we talk about discount valuations for PSUs, how they are undervalued.

The government needs to plan better, be smart & proactive when it comes to financial markets. Capital markets are essential. Also, with the Crypto ban lifted by the Supreme court, people might prefer to ditch fiat money thanks to the scams involved in banks, which is good in a way.

As for me, I am expecting a Black Friday bloodbath in Sensex. I would love to be proved wrong. In either case, I would suggest BUY THE DIPS for long term investments.

Tags: Indian Banks, Crypto ban in India, India, Cryptos, Capital Markets, NBFC, YES Bank, Sensex