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RBI’s experiment with stressed banks
August 01, 2022
Wordle is a popular mobile app game. It’s about guessing a word right by using different permutations and combinations of alphabets. From 2018 to 2020, this is what the RBI did with banks it came up with different solutions each time a bank faced an existential crisis. It was important to avert a systemic risk and safeguard the interest of depositors. But what makes the experiment an interesting one is that no two solutions were similar, and the old rule book wasn’t referred.
In March 2020, when YES Bank was on the verge of collapse, rumours were thick that State Bank of India may have to bankroll its rescue. Likewise, when things were cracking up at Lakshmi Vilas Bank (LVB) in October2020, the grapevine was thick about Punjab National Bank having to step in to save the private lender.
But none of these happened and each act of rescue has turned out to be an out-of-box solution. It started with IDBI Bank, which was placed under prompt corrective action in 2017.
Given its book size of over ₹4-lakh crore, it couldn’t have just been placed on ventilator for long. So, a year later, an entity that could never take a promoter seat owing to its regulatory constraints – Life Insurance Corporation of India (LIC) – pitched in to heavy lift the government’s (IDBI Bank’s erstwhile promoter) burden by infusing ₹21,624 crore of capital into IDBI Bank. It exited PCA in March 2021, and now the deck is getting readied for the government and LIC to offload their holding in IDBI Bank.
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