homemarket Newscurrency NewsYes Bank debacle: Rate cuts and extraordinary measures cannot be ruled out till April 3, says Ananth Narayan of SPJIMR
Yes Bank debacle: Rate cuts and extraordinary measures cannot be ruled out till April 3, says Ananth Narayan of SPJIMR
Both rates cuts, as well as extra ordinary measures such as extension of the long-term repo operation (LTRO) can’t be ruled out between now and April 3rd, said Ananth Narayan, Professor, SPJIMR.
The government has effected moratorium on YES Bank from March 5 to April 3 on the recommendation of Reserve Bank of India (RBI). The order came into effect from 6 pm March 5. The private lender will not pay depositors more than Rs 50,000 during the moratorium period, irrespective of the number of accounts with the bank.
Discussing the impact of this on the currency market and his expectations from RBI on back of this developments, Ananth Narayan, Professor, SPJIMR said, “I do expect the RBI to be very vigilant on all markets right now. Governor Das has repeatedly told us that he is worried about financial stability, the health of the financial services ecosystem. With the Yes Bank debacle and with the possibility that there are still question marks about some banks and some other non-bank finance companies, I think RBI will be very vigilant."
"Both rates cuts, as well as extra ordinary measures such as extension of the long-term repo operation (LTRO) can’t be ruled out between now and April 3rd," he said in an interview with CNBC-TV18.
Let us not forget that we still have Federal Open Market Committee (FOMC) coming up on March 18th, which could see some additional cuts coming through, he said, adding that rate cuts would probably continue to try and give some ease to the system.
He further added, “On the foreign exchange (FX) markets things aren’t looking great despite oil prices coming down and globally soft commodity prices etc. There is an overhang of long rupee carry positions in India. Much of the dollars which have been accreted into RBI’s reserves are either unhedged foreign currency debt or simply speculate a long rupee positions or net exporter selling etc. that nervousness is there. I think the RBI will use its ample reserves to quieten the FX market as well.”
When asked if under current circumstances any kind of measures would help, he said, “I don’t think interest rates can help, it will be pushing on a string, the issues are elsewhere but at least in terms of sentiment the RBI will be careful. There are questions marks which are unresolved right now, what happens to the tier II bonds, credit spreads of other NBFCs which have been big issue will probably also go up, so given that kind of nervousness I think they will provide relief . But the solution is not rate cuts or sweet talk. At least now the need to recognise there is the bigger problem and take some severe action in terms of a onetime solution on the non-performing assets (NPAs) as well as banking reforms going ahead I hope they go down that path.”
Speaking about collateral damage of the Yes Bank debacle he said, “Unfortunately, the problem is not or the trust deficit is not limited to Yes Bank, Yes Bank was the most egregious of the lot but there are other banks, and other non-bank finance companies where there are questions marks as well. So all of them as a class could get affected as well. So, you will see the credit spreads going up, you will see question mark coming up. Overall it is not a great situation to be in but solutions do exist, hopefully Delhi will recognise them and take the adequate steps.”
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