DMPQ- Why there is a reluctance on the part of Indian authorities to let the Yes Bank fail even though it is a Private Bank ?

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Recently a moratorium was put on withdrawal limit upto 50,000 by RBI circular. This lead to panic among the YES bank consumers which led to fall in the share price. RBi came up with restructuring scheme. SBI will invest in 49% stake and other private investors have also invested in the bank.

Even though the bank was private, government did not allow it to fail because”

  • The bank is a large one with balance sheet of 3.5 lakh crore as deposits. Its capital size is large which cannot be allowed to fail.
  • The financial ecosystem are interlinked with insurance, micro finance , real estate, mutual funds, bond market all will be get affected. The non intervention would have more negative affect on economy.
  • The non intervention would have sent negative message in the market. It would have led to deterioration of trust which is key to have an efficient financial transactions.
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