Rupee, Indian stocks tumble after central bank takes control of Yes Bank

MUMBAI: India’s rupee weakened to its lowest since 2018 and stocks tumbled after the central bank seized control of beleaguered Yes Bank Ltd, intensifying the risk-off mood fueled by the spread of coronavirus cases in India.

The S&P BSE Sensex slid 3% to 37,302.81 in Mumbai at noon, entering correction territory.

The rupee fell as much as 1.1% before trimming losses on what traders said was suspected central bank intervention.

“Investors have turned risk averse and the contagion is likely to hit smaller bank and non-bank finance companies,” said Abhimanyu Sofat, Mumbai-based head of research at IIFL Securities Ltd.

“How soon the RBI finalises the rescue plan is key as persistent operational curbs increase uncertainty.”

The Reserve Bank of India put strict limits on the lender’s operations while a rescue plan is devised.

Under a government-backed proposal, State Bank of India, the nation’s largest lender, will lead a group that will inject new capital into Yes Bank, people familiar with the matter said on Thursday.

The curbs could hardly have come at a worse time, with Indian assets already reeling from the economic impact of the outbreak.

Primary schools in New Delhi have been closed until March 31 to prevent the spread of the virus with the number of confirmed patients across the country jumping to 31 this week.

The RBI capped withdrawals from Yes Bank at 50,000 rupees and ordered it not to issue new loans.

The lender’s shares plunged as much as 85% before paring some losses after Governor Shaktikanta Das said that resolution for Yes Bank would be swift.

State Bank tumbled 6.5%, while the yield on 10-year government debt slid 6 basis points.

“The panic will subside immediately if they act fast,” Nilesh Shah, chief executive officer and managing director of Kotak Mahindra Asset Management Co, said by phone.

“The moratorium without providing for a backup wasn’t expected. The market was expecting a solution like what they did for Global Trust Bank,” which was merged with a state-owned lender in 2004, he said.

Friday’s drop is likely to cap a third straight week of losses for the rupee. While the rupee was initially insulated from the drop in Asian currencies, a rising number of virus case detections in India has led to worries about the potential fallout on economic activity.

The rupee likely recouped some of its losses after the central bank bought toward 73.69 levels, according to Kotak Securities Ltd.

“In such panic-driven markets, the RBI may have to step in quite aggressively, else USD/INR risks moving toward the all-time high,” said Anindya Banerjee, currency strategist at the brokerage.