Covid-19 outbreak, YES Bank rescue make small banks vulnerable: Moody's

Public trust in public sector banks will remain strong, underpinned by a perception of strong government protection for them, Moody's said

The ripple effect of YES Bank rescue will make smaller private sector banks in India vulnerable as event coincides with the Covid-19 outbreak and aftermath according to rating agency Moody’s.
 

The YES Bank moratorium, which occurred amid deteriorating economic conditions globally following the Covid-19 outbreak, and acute volatility in financial markets, will undermine depositor confidence in private sector banks.
 

Alongside, public trust in public sector banks will remain strong, underpinned by a perception of strong government protection for them. As a result, some private sector banks, particularly, small institutions will lose deposits to PSBs, which will weaken their funding profiles, Moody’s said in a statement.
 

PSBs have gradually lost deposit market share to private banks because the latter offers higher interest rates and better customer service.