Yes Bank Crisis: Government Has No Plan To Put Other Private Lenders Under Scrutiny
An information notice indicates that ATMs are out of cash at a Yes Bank branch in Mumbai, India, on Friday, March 6, 2020. (Photographer: Dhiraj Singh/Bloomberg)

Yes Bank Crisis: Government Has No Plan To Put Other Private Lenders Under Scrutiny

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The government has no plans to bring private sector lenders under scrutiny in the aftermath of the Yes Bank crisis, sources indicated today.

"There is no such plan," said an official source, when asked if the troubles at Yes Bank and Punjab & Maharashtra Cooperative Bank call for scrutiny of other lenders.

There has been timely action on part of both the government as well as the Reserve Bank of India in both these cases, the source said. "The bailout plan (for Yes Bank) has also been announced. So, this will be contained.”

Analysts, however, expect that the new-age private banks, along with the cooperatives, could face slow growth in their deposits as the banking business is based on trust and confidence.

S&P Global Ratings said if Yes Bank's resolution process is prolonged, there is a risk that the broader banking environment may take a hit. "The uncertainty may engulf weak financial-sector entities, including non-banking finance companies or private sector banks,” the ratings agency said. “Companies with marginal credit profiles, perceived governance issues, and aggressive risk appetites are particularly vulnerable. These could suffer from extended risk aversion, resulting in rising borrowing costs.”

After troubles at IL&FS, DHFL and PMC Bank, Yes Bank is a bigger setback given its size and profile, said Tarun Bhatia, managing director and head (South Asia) at Kroll Inc., a corporate investigations and risk consulting firm.

"The event (Yes Bank crisis) raises serious issues around corporate governance in the bank but will now bring all other mid-sized and small banks under scanner too,” Bhatia said. “The cost of capital will increase for banks and there could be increase in asset side risks with growing concern on the quality of portfolio they hold.”

Also Read: Yes Bank: Missing Pieces Of The Puzzle

Brokerage firm Anand Rathi said deposit growth for select banks may slow down.

"The banking system is based on goodwill and trust. Given the recent events, new-age private banks and smaller regional banks may see slower deposit growth," Anand Rathi said in a note titled India Banks? Likely contagion effect of Yes Bank. Although RBI and the government have stepped in to safeguard depositors, "we expect retail investors to park their deposits in PSBs and select larger private banks", the note stated.

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