Indians fearing the collapse of Yes Bank flocked to ATMs and branches across the country on Friday and Saturday to withdraw cash (Indranil MUKHERJEE)

Mumbai (AFP) – Shares in India’s embattled Yes Bank jumped by a third Monday on hopes of a central bank-backed rescue plan for the country’s fourth-largest private lender, which tanked last week on fears it was about to collapse.

Yes Bank, which is struggling under a massive pile of bad loans, plunged 56 percent on Friday after the Reserve Bank of India late Thursday seized control of the lender and imposed withdrawal limits.

They rallied 31 percent on Monday after the country’s largest lender, the State Bank of India (SBI), confirmed Saturday it was ready to invest 24.5 billion rupees ($330 million) for a 49 percent stake as part of a rescue package.

The Reserve Bank of India tweeted Sunday that depositors should not worry about their savings in any bank after customers rushed to Yes Bank ATMs and branches on Friday and Saturday in a desperate bid to retrieve their funds.

The RBI also indicated it would write down some bonds issued by Yes Bank.

“Interest from SBI, which will likely get another investor on board, has addressed a major problem of survival for Yes Bank and buoyed its shares for the time being,” Anand Rathi securities economist Sujan Hajra told AFP.

Hajra cautioned that a full recovery was a long way away.

The RBI said the lender’s weakened position was “largely due to inability of the bank to raise capital to address potential loan losses and resultant downgrades”.

The news added to liquidity concerns about India’s financial system more than a year after the near-collapse of IL&FS, one of the nation’s biggest “shadow banks” — finance houses responsible for significant consumer lending.

A resulting reluctance of banks to lend money has exacerbated the woes of Asia’s third-biggest economy, with growth slowing for seven consecutive quarters before picking up in late 2019.

Yes Bank’s exposure to the shadow banking sector is particularly large and it has been struggling for some time to raise fresh capital to free itself of a mountain of bad loans in order to quell worries about its viability.

SBI shares fell 5.38 percent Monday alongside other financial stocks. The Sensex stock market was down 5.5 percent at 33,510 points in the afternoon.

The rally was even more outstanding as it bucked a massive sell-off across global markets caused by the coronavirus outbreak and a crash in oil prices.

It also came despite news that Yes Bank’s founder Rana Kapoor had been arrested on Sunday after being questioned for more than 20 hours by officials from the Enforcement Directorate, India’s financial intelligence agency, in Mumbai.

“He has been arrested as he was not cooperating in the probe,” an Enforcement Directorate official who requested anonymity told AFP.

Disclaimer: Validity of the above story is for 7 Days from original date of publishing. Source: AFP.