Yes Bank moratorium: Market was unprepared; more likely liquidity issues than credit, says Kotak Mahindra AMC

Nilesh Shah, MD of Kotak Mahindra AMC and Punita Kumar Sinha, managing partner of Pacific Paradigm Advisors in an interview to CNBCTV18 spoke at length about the Yes Bank fiasco and its impact on markets.

“The market was not prepared for moratorium on Yes Bank and there was always a hope that there will be a bailout like Global Trust Bank. Now we have to wait for the developments to occur,” said Shah.

“One should realise that Yes Bank has combined net worth including equity capital, tier one and tier two bonds of Rs 51,000 crore. So it’s not a bank which has a huge credit issue; they are adequately capitalized for the same, maybe there are liquidity issue and this moratorium will help Yes Bank to iron those differences,' Shah said, adding that obviously the market’s reaction is going to be negative at the first sight because the second leg of the transaction, what will be the arrangement post moratorium has not yet been announced; a lot of rumours were circulating yesterday. So we will be waiting for the developments to happen on how this situation is handled post moratorium, he added.

From shareholders’ perspective, Shah said, “There is no option but to keep the faith. Today, market is acting on fear. The banks which are down today, collectively are not in trouble. Today, probably there is a panic reaction and fear that there will be a contagion but tomorrow when there will be a solution then the same fear will give away.”

In such a scenario, Sinha said, “It is early to predict what this is going to mean for the other banks. Definitely, there is going to be some loss of confidence on the depositors and investors part and it came as a surprise in terms of RBI’s actions, but I don’t know if it will have wider impact. It depends a bit on how the next step is handled and what the government announcements are.”

“There is some risk of credit slowdown and some confidence loss, but at the moment the timing wasn’t great given that we have the coronavirus fears and now we have this additional fear hitting India,” she added.

However, lower crude prices would help Indian economy and fiscal situation, said Sinha.