By Anubhav Srivastava
Announcement on Yes Bank caught many off guard though a decision may have been pending for a while. This is reminiscent of the Bear Sterns bailout by JP Morgan in the days of the credit crisis, ostensibly at the request of the US Fed – much like SBI stepping in.
There are some key reasons why Yes Bank's issue is different from either Bond defaults in the past or even PMC Bank - the primary one being size: Yes Bank failure does have the potential to destabilize the already reeling financial system and the larger economy. And this is also why it is unlikely to happen, albeit with significant pains being faced by depositors with regards to their daily expenses, EMIs and other payments getting temporarily affected.
Eventually, a recapitalised and possibly merged bank could, likely, return to business as usual (though hopefully not the usual business which brought Yes Bank to its knees) because any other outcome would not be acceptable to any stakeholder; RBI and the Government included.
However, investors in Yes Bank Equity/Debt may not fare as well – mutual fund investors being the worst off. As usual, archaic valuation criteria always seem to catch managers (and mostly their fund accountants) off-guard triggering perpetual blame-game between Rating Agencies and AMCs. Therefore, we just may yet see a significant flight to safety with the development of alternative asset classes such as REITs and InVits gaining momentum.
(The author is the Partner at Infinity Alternatives)
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