Yes Bank bailout: Private lenders may lose deposits to PSBs

According to the global rating agency Moody’s Investors Service report, the Yes Bank rescue will lead to smaller entities losing deposits to state-run banks, as it has undermined the confidence of depositors in private-sector lenders. The RBI – which had to steer the over Rs 10,000 crore Yes Bank bailout – has, however, said money in all the banks is safe.

The Yes Bank rescue package saw a write-off of Rs 8,415 crore of investments in the additional tier-I bonds. It will increase uncertainty among debt investors about the health of the overall financial system in the country. It will, in turn, accentuate funding stress at the NBFCs.

According to the report, the Yes Bank episode places the country’s financial system on “alert” and the rescue in itself “exposes weaknesses in the process to support a failing private sector bank”.

Apart from peer private sector banks, the Yes Bank event will also impact the non-bank lenders, who have already been facing troubles since the collapse of infra lender IL&FS in 2018.