Effects of failure?
The government took over IL&FS (Infrastructure leasing and Financial service) in 2018 in an effort to reassure creditors
after the defaults. Also, in 2019, the RBI seized control of another struggling shadow lender, Dewan Housing Finance
Corp., to initiate bankruptcy proceedings.
The Yes Bank crisis could trigger a domino effect that could lead to the collapse of various other financial institutions.
India's Lehman Moment
The IL&FS default spooked the markets and raised fears of a Lehman-like crisis, referring to the collapse of the US
investment bank Lehman Brothers in 2008-09.
The event rocked global stock markets and led to the biggest financial crash (Global financial crisis) since the Great
Depression 1929.
2. The Yes Bank Crisis reflects badly on RBI regregious:
At that point of time RBI put a 30 days moratorium on Yes Bank to save it. A major effect of the yes bank crisis was that
there was a big chance that other financial institutions could collapse. But the Reserve Bank of India took initiative and
saved Yes Bank from major collapse.
Even after RBI's takeover of Yes Bank, the news of limiting withdrawals at Rs 50,000, has led to long queues of
people claiming their money back.
The YES Bank crisis reflects badly on the RBI functioning. It showed that apex bank was too slow to identify governance
failure among IL&FS, DHFL and YES Bank.
3 . Yes bank crises also had adverse impacts on the Banking sector.
The YES bank's financial condition discouraged many depositors from keeping funds in the bank over the long term. As a
result, the bank showed a steady withdrawal of deposits, which burdened its balance sheet and added to its distresses
Private banks will be forced to offer higher deposit rates, keeping the cost of credit higher.
Thereby banks will not be able to cater the credit requirement which is to reach the dream of becoming a $5 trillion
economy by 2024-2025.
4. Effect of Indian Economy:
Collapse of Yes Bank is highly undesirable, at the time when the growth in the Indian economy was dropped by 5%
The YES Bank crisis came as a result of the mounting bad loans due to problems faced by the Indian economy. The YES
Bank crisis reflects badly on the RBI functioning.
Aftermath of the failure
First, the Reserve Bank of India has taken over the YES Bank management.
It has imposed a moratorium whose cash withdrawal limit has been capped at Rs 50,000.
The RBI used the instrument of moral suasion on the SBI to acquire the Yes bank.
o Moral Suasion – is a qualitative control method of the RBI.
o Moral Suasion means the use of compulsion or informal suggestion by the RBI on Commercial banks for the
condition of Credit Policy.
The RBI announced a draft ‘Scheme of Reconstruction’ that entails the State Bank of India (SBI) investing capital to
acquire a 49% stake in the restructured private lender.
SAVING YES BANK
the Indian government bank step up for the rescue of Yes Bank. SBI announced that it will purchase ownership of 49% with a
Rs 7250 crore investment. Along with this, HDFC and ICICI are investing Rs.1000 crore each, Axis Bank investing 600 crores,
Kotak Mahindra Bank investing 500 crores, Bandhan Bank investing 300 crores forming the dream team along with
Jhunjhunwala, Damani and Azim Premji Foundation Along with this many private banks and foundations together making up
an investment of over 12000 crores.
The SBI rescue does not only aim at providing financial relief to Yes Bank but also aims at avoiding any further panic among
the depositors of Yes Bank and possibly avoid a bank run.
