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Yes Bank panic an overreaction, depositors need not worry, says HDFC's Deepak Parekh

He added that RBI has taken a timely call and that the central bank has the right to “do whatever it needs to do to protect depositors"

March 06, 2020 / 02:40 PM IST
Deepak Parekh, Chairman, HDFC

Deepak Parekh, Chairman, HDFC

 
 
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Housing Development Finance Corporation (HDFC) Chairman Deepak Parekh termed panic in the market over Yes Bank as ‘unnecessary and an overreaction’.

“The public is reacting as if this is the end of the world. It is a temporary overreaction, which is unnecessary. Panic in the market to the moratorium is completely an overreaction,” Parekh told CNBC-TV18.

He said the problem is bank-specific and not sectoral.

Stating that our financial system is strong, he said, “One company going under or having temporary problems due to lack of capital cannot destroy the system.”

He added that RBI has taken a timely call and that the central bank has the right to 'do whatever it needs to protect depositors'. “RBI has taken a timely call with this move. If they (RBI) had waited till March 14, there would have been a run on the bank. The bank (Yes Bank) needs capital and needs it as soon as possible. There could be a rights issue where some of us may be asked to participate,” he noted.

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Allaying concerns as to why the process is taking so long, Parekh said, "If SBI needs to put in equity in Yes Bank, they need a few days for approvals. If SBI invites other investors, I am sure other banks will join in to protect the financial system. All plans are still being worked out "

Explaining the rationale of State Bank of India (SBI) participation, Parekh said: “Large number of foreign funds have discussed various options with RBI. Most of these investors are prominent international players that do not have any investment in India. RBI may have needed comfort of an institution like SBI.”

When asked if he was aware of any private player participating in the Yes Bank investment process, he said, “Initially it is SBI's call, if they need anyone to participate they will ask.”

The veteran banker felt panicking depositors had no reason to worry. “I am convinced that Yes Bank depositors will get all their money bank."

He also allayed depositors' fears with regards to the security of their deposits in case of a merger, saying: "The government wants to run Yes Bank as an independent entity. It is better to run Yes Bank independently and revive it."

However, he felt that the bank's depositors should have conducted proper due diligence while investing their money. "IL&FS was not an accident, but a disaster waiting to happen. Even Yes Bank was a disaster waiting to happen. It was known that the bank's loans would not come back. Yes Bank could have turned around themselves, but now a drastic steps had to be taken by RBI. People should take precaution investing in such companies," he said.
Moneycontrol News
first published: Mar 6, 2020 02:40 pm

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