Is Yes Bank Failure the Lehman Moment for India

When the Federal Reserve decided not to provide a rescue for Lehman in 2008, it created utter chaos and confusion resulting in credit markets basically freezing with banks unwilling to lend to each other let alone to others.

India has seen many Bank Failures including the failure of a Scheduled Bank, Global Trust Bank way back in 2004. Recently we saw the failure of PMC Bank which was a cooperative bank but was still large enough to send shockwaves through the system.

Unlike Global Trust Bank of 2004, two things have changed. One, Yes Bank is or was the 4th largest private sector bank in India. Second, unlike in 2004, the availability of 24*7 news channels and social media means that the risk blows up big time for others for fear can drive people to act irrationally.

RBI’s action on Yes Bank has come too late and by penalizing the depositors is setting a bad example that shall not be forgotten for a long time. 

I don’t want to add fuel to the raging fire. Markets will take a while to recover from his hit. Invest with care.