Friday, March 13, 2020

How the Yes Bank crisis has caused a domino effect


Masses were only reviving and starting to gain their faith in the financial system of the country when we witnessed yet another setback, this time to the banking segment of the nation. Private banking player Yes Bank, which once had a dominant position in the country saw its NPAs climbing fast with the bank’s primary lenders currently undergoing steep valuation declines or started undergoing an investigation itself.

The resultant cash crunch was responsible for the trickle-down effect that not only affected the direct account holders but had an impact on various other fronts as well.

The first and foremost effect of the Yes Bank crisis was on Life Insurance Corporation of India. The insurer has usually seen a high amount of revenue collection coming in the month of March every year. The premiums usually flow in these days as online payments. With the automation of processes, the bank for NACH debit and cheque clearances for LIC was Yes Bank which is expected to affect the collections for the corporation for the month of March for Q4 ‘20.

LIC had also earlier sent a message stating there would be a delay in premium debit for policies. This would add to the distress that the crisis has already been causing.

Another impact is on the account holders as the bank is under a moratorium restricting the monthly withdrawal to Rs 50,000, subject to certain exceptions and prior approvals from RBI. This is not only bound to hinder the day to day activities for people whose, primary bank accounts were in yes Bank, but may also hamper small businesses.

Not only would this affect the daily lifestyle, but it may also demotivate the people who wanted to apply for the SBI Card IPO. Out of all the applications for allotments received for the IPO, applications worth Rs 1,500 crore were through people with their accounts in Yes Bank.

Even though the company said that if the applicants are able to pay the amount through an alternative bank account the allotment would still be done, this may not be a practically feasible option for many in such a short notice. Thus, the crisis is expected to have its effects on the IPO too, affecting the listing price and number of participants to a huge extent.

On the other side however, one should also keep in mind that a good participation even if after the effects of the crisis, may help Yes Bank in the long run. This can be said based on the fact that SBI would be infusing capital in the beleaguered bank soon, taking a 49 percent stake as a part of restructuring scheme that has been proposed. The collections of the IPO would thus help SBI fund this move too. However, whether each process would be executed successfully is based upon the IPO’s performance in the current bearish markets.

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