'Cascading Effect Of Yes Bank Crisis On Other Sectors Is Worrying': Vinod Kothari

Economy

The bank will not be able to grant or renew any loan or advance, make any investment, incur any liability or agree to disburse any payment.

Written By Devarshi mankad | Mumbai | Updated On:

In an exclusive interview with Republic Media Network, Financial Consultant Vinod Kothari explained the current crisis Yes Bank was facing. In his comments, the financial advisor stated that he believes that apart from the issues faced by depositors, another worry of Yes Bank's financial problems is the contagion or the cascading effect on other sectors. 

READ: RBI Supercedes Yes Bank's Board With Immediate Effect; Appoints Ex-CFO As Administrator

'Contagion effect worrying'

Speaking to Republic TV on Friday, he said, "The biggest issue that we currently have to understand is that this problem is not a problem by itself. It is transmitted from the recent corporate failures that have happened over the last couple of years The financial sector has seen casualties in the past but the major casualties have caused a kind of contagious impact. The biggest worry in terms of the financial sector is the risk of contagion impact."

"For example, the investors concerned here are not really the withdrawal or the deposits, it is also the losses that mutual funds will face because a lot of mutual funds have an exposure to the bonds issued by Yes Bank. There are several of them that have investment inequities. So the depositor's concern is to retain investors, which is important. At the same time, the larger system-wide impact on other financial institutions, because if mutual funds burn the money that is also investors' money. So investors losing money via either mutual funds or via the investments in equities or via the deposits placed in Yes Bank - deposit, of course, is the most important and the most first source of worry. However, the larger worry is contagion."

READ: Finance Ministry Circular Notifying Moratorium On Yes Bank Pasted Across Branches And ATMs

A temporary moratorium or embargo has been issued on withdrawals from Yes Bank accounts by the Reserve Bank of India on Thursday evening. The moratorium has been issued till April 3, 2020

The circular issued read, "In exercise of the powers conferred under 36ACA of the Banking Regulation Act 1949, the Reserve Bank has in consultation with Central Government, superseded the Board of Directors of Yes Bank Ltd for a period of 30 days owing to a serious deterioration in the financial position of the Bank. This has been done to quickly restore depositors' confidence in the bank, including by putting in place a scheme for reconstruction or amalgamation. Shri Prashant Kumar, ex-DMD and CFO of State Bank of India has been appointed as the administrator under Section 36ACA (2) of the Act."

READ: 'Scheme To Revive Yes Bank Soon; 30 Days Outer Limit For RBI Moratorium': Shaktikanta Das

The bank will not be able to grant or renew any loan or advance, make any investment, incur any liability or agree to disburse any payment. The apex bank has assured customers that their interest will be fully protected and they do not need to panic. 

The decision comes hours after it was reported that the Finance Ministry had approved State Bank of India to explore investment opportunities in the private bank. Yes Bank has been struggling to raise funds, with bad loans increasing. 

 The RBI took over the Board of Yes Bank on March 5. 

The government, in the circular also gave an exemption to Yes Bank regarding payments. "During the period of the moratorium, Yes Bank can make the following payments: the amount to repay loans or advances granted against government securities to the banking company by the Reserve Bank of India or State Bank of India, or any other Bank on any unpaid date on which the order comes into force."

Notably, Yes Bank stocks fell by more than 70% on Thursday morning as the investor confidence faded. 

READ: Yes Bank Moratorium: Former FM P Chidambaram Sides With RBI, Here's What He Said

First Published:
By 2030, 40% Indians will not have access to drinking water
SAVE WATER NOW
PEOPLE HAVE PLEDGED SO FAR
DO NOT MISS