India’s Chaotic Bank Rescue Sparks Worries on Spectrum of Things
India’s Chaotic Bank Rescue Sparks Worries on Spectrum of Things
(Bloomberg) -- India’s chaotic seizure of Yes Bank Ltd. has far from calmed the nerves of investors, leaving market participants worried about a whole gamut of issues.
Matters that market participants are speculating about include the prospect of Yes Bank being merged with State Bank of India, the future of AT1 bond issuance, funding for infrastructure projects and the potential for higher scrutiny of other lenders.
India’s biggest bank failure in history has left the nation with one of the world’s largest piles of bad debt, again defending the stability of its financial system.
Here is what analysts and investors are worried about:
Morgan Stanley (Analysts including Sumeet Kariwala)
- The rescue plan for Yes Bank “clearly highlights the risk of SBI having to help stressed lenders if the economy stays weak.”
- There could be the risk of further contributions by SBI to help Yes Bank, depending on impaired loan ratios at the latter.
- Prefer large private banks -- they are key beneficiaries as systemic risk concerns diminish.
Citigroup (Analysts including Manish Shukla)
- “Having SBI ownership locked in for three years should provide some comfort to depositors and other counter-parties of Yes Bank.”
- “AT1 write-off will have implications for demand of future AT1 issuance by other private banks.”
Credit Suisse (Analysts including Ashish Gupta)
- A merger of SBI and and Yes Bank might “be the eventual outcome.”
- “We believe a full merger to be less adverse to SBI (assuming nil equity valuation) as capital for provisions can be recouped by funding cost synergies.”
Centrum Infrastructure (Managing Director Sandeep Upadhyay)
- “With the Yes Bank seizure, India is losing a major financier to the green and infrastructure sectors.”
- “Even high-quality projects will struggle to get financing or refinancing, and that could have a ripple effect.”
Mobius Capital (Co-Founder Mark Mobius)
- “What is now more important is for the regulator to carefully assess the books of all banks to ensure that their number of bad loans aren’t excessive and plan for further deterioration with prudent recapitalization programs.”
- “I don’t think the RBI had much choice but to act the way it did” to avoid confidence in the entire banking system being eroded.
To contact the reporter on this story: Abhishek Vishnoi in Singapore at avishnoi4@bloomberg.net
To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Margo Towie, Cecile Vannucci
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