Shares And Deposits Of Smaller Private Bank Hurt By The Yes Bank Crisis

After the Yes Bank crisis, shares of major mid-sized private banks have been affected. Shares of IndusInd Bank and RBL Bank have fallen over 75 percent from their 52-week highs despite issuing individual statements assuring shareholders and customers that they are well-capitalised and profitable.

IndusInd Bank: Quotes, News

BSE 820.6022.55 (-2.75%)

NSE 820.6023.35 (-2.85%)

YES Bank: Quotes, News

BSE 18.470.39 (-2.11%)

NSE 18.470.4 (-2.17%)

These banks are faced with the challenge of convincing their shareholders and large depositors of their positions after investors' confidence was understandably shaken by the collapse of PMC Bank and Yes Bank in a span of fewer than 6 months.

The failure of retail banks after the liquidity crisis among NBFCs, that was triggered by the IL&FS fiasco, the confidence in India's financial system has been shaken.

RBL Bank and IndusInd Bank confirmed through press releases that there was a 3 percent and 2 percent reduction in their respective deposit base after some state governments shifted their funds. However, they assured that their balance sheets and deposit franchises remain healthy and the impact from the withdrawals appeared marginal.

The Reserve Bank of India (RBI) had announced the placement of Yes Bank under a moratorium on 5 March. Between 6 March and 20 March, IndusInd Bank's shares have fallen by 59 percent from Rs 1,075 to Rs 440, whereas RBL Bank has slipped 43 percent from Rs 301.40 to Rs 170.25.

The reconstruction of Yes Bank piled on to the existing negative sentiment in the market from COVID-19.

Many depositors have also been withdrawing deposits from Yes Bank even before the moratorium was placed. As per data released by the lender on Friday, its deposit base has fallen from Rs 2.09 lakh crore as on December 2019 to Rs 1.37 lakh on 5 March.

It is most likely that during the moratorium period and after the withdrawal limits were lifted, more depositers would shift their money to larger banks or probably even close their accounts.

Further, the Supreme Court's rejection to provide relief to the telecom companies with regard to AGR dues also impacted the share prices as private banks have significant exposure to the telecom sector. The possible bankruptcy of Vodafone Idea could increase the NPAs (non-performing assets) of these banks.

Also, mid-sized private banks, including Yes Bank have a large number of customers from the SME sector, whose businesses are expected to be the most impacted by government-imposed shutdowns to control the spread of coronavirus.

Analysts say that while there are valid reasons causing the worry among investors, the reaction may be over the top.

Last week, RBI Governor Shaktikanta Das advised state governments to not move their accounts out of private banks. He also said that there was no instance in the nation's banking history where bank depositors had lost their money.

Addressing the decision of a few states, including Maharashtra, to shift their deposits from private banks to state-run banks, Das had said, "The health of the banking sector, including private banks, is safe and, therefore, there is no reason for the state authorities to take away deposits from private banks."