The collapse of Silicon Valley Bank (SVB) and Signature Bank has sent shock waves across the globe amid concerns over financial stability in the times of aggressive rate hikes by central banks.
The US-based SVB, which largely serves tech startups, was shut over large withdrawals from depositors, making it the second-largest bank failure in history after Washington Mutual, which went bust in 2008 financial crisis. Two days after the crisis at SVB, New York regulators closed Signature Bank, dragging the banking system into further turmoil.
Back home, Indian regulators too were on the edge when similar incidents raised concerns over the health of the financial systems. Here's a brief history on banks that failed and how regulators, including the Reserve Bank of India, acted.
YES Bank
YES Bank's troubles surfaced after the clean up act of bad loans by the RBI, which prompted banks to report their asset quality. After the review of RBI, it was found that the bank had severe stress on the balance sheet and was unable to raise capital for operational business. Moreover, fearing failure, customers started taking deposits back in a big way. The RBI had to take rearguard action, in which it superseded the YES Bank management, imposed a moratorium and later came up with a reconstruction scheme that involved 9 banks led by SBI acquiring 49% stake in the Bank.
Lakshmi Vilas Bank
Lakshmi Vilas Bank failed due to irregularities in lending large corporate loans and misuse of public fund deposits. The bank's Rs 720-crore loan to former Ranbaxy promoters, Shivinder Singh and Manvinder Singh went bad, deteriorating the finances. The RBI has placed the bank under a moratorium and deposit withdrawals were capped. The bank was later merged with DBS Singapore's India unit after the moratorium was lifted.
Punjab and Maharashtra Cooperative Bank (PMC Bank)
The RBI had found that PMC Bank severely underreported its bad loans despite defaults. There were also corporate governance issues, where promoters colluded with the bank. The central bank had imposed a strict moratorium on the bank, where depositors were unable to withdraw cash beyond a certain limit.
Global Trust Bank
Global Trust Bank had high exposure to capital markets, more than the regulator's prescribed limit and gave away loans to speculators in the 2000s. When the market crashed, the bank suffered heavy losses. The RBI review found that the bank's net worth turned negative and forced it to shut shop.
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