From the Viewsroom

SBI right in supporting YES Bank

Shishir Sinha | Updated on March 13, 2020 Published on March 13, 2020

The move will restore confidence in India’s financial system

There’s a deeper meaning to State Bank of India acting as a saviour for YES Bank. It should be seen as not just an investment in a bank, but in the reputation of the entire Indian financial system. The YES Bank episode now and PMC Bank episode few months back, among others, have put a question mark on the stability and strength of the Indian banking system. An impression is being created, especially by the foreign media, that the entire Indian financial system is on a very weak wicket. For instance, the ₹5,600 crore NSEL (National Spot Exchange Ltd) scam, which took place in 2013, was linked to the commodity market; but an impression was created in global forums that the entire Indian capital market was really in bad shape. At that time, timely action by the government and regulators did help in minimising systemic damage.

This time round, when it was proposed that SBI will take up equity in the fourth largest private sector lender, questions were raised on the motive. Some said that SBI should not step in as it gets its capital through taxpayers. But the point is that when SBI backs YES Bank, it infuses confidence in domestic and global investors to put money into the beleaguered bank. Inaction will have hurt not just the stakeholders of the bank concerned, but the entire banking or financial system. Intervention is crucial at a time when the economy is in a prolonged slowdown phase, with prospects of recovery being complicated by Covid-19. A concrete effort to help YES Bank rebuild itself beside punishing those behind the crisis will create a conducive environment, domestically and internationally. In this effort, the role of every contributor needs to be appreciated.

SBI is not buying out YES Bank or putting in money for the long term.

Published on March 13, 2020
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