Moody's Alleged Weakness in Process of Handling Yes Bank's Crisis

Handling of the Yes Bank crisis and its rescue process brings to light the weaknesses in the government's support for the distressed private sector banks, according to a report by Moody's Investor Services.

"Yes Bank's rescue highlights weaknesses in the process to support a distressed private sector bank. While authorities, together with financial institutions across the public and private sectors, have rescued Yes Bank's depositors and senior creditors, this case indicates that in dealing with a distressed private sector bank, authorities will only step in to provide support after imposing a moratorium on depositors and creditors, which effectively constitutes a default by the bank" said the report.

While in the Yes Banks case, senior creditors were not bailed in, the Moody's report said that imposing a moratorium as part of the rescue process means that creditors of a bank with rapidly deteriorating solvency can suffer permanent losses before authorities’ step in.