13/03/2020: COVID-19 and the ongoing effects on the Markets

Its Friday, the 13th today. Without being superstitious, let's just move on to our top list of events that happened this week.

CORONAVIRUS

  • Let’s probably begin by addressing the fact that Tom Hanks and his wife Rita Wilson, are down with Coronavirus in Australia. Hanks and his wife had gone there to begin the production on a film based on the life of Elvis Presley. Well, for us it’s just relieving that at least now he’s not alone unlike Cast Away, and also he has his ‘Wilson’ with him.

 

  • As the highly contagious coronavirus spreads around the world, Israel and the Palestinian Authority have struggled to contain a local panic outbreak that has virtually halted air traffic in Israel, led to schools being shuttered and tens of thousands of people quarantined. Around 120 Israelis have so far tested positive for COVID-19; thousands have been quarantined; four have recuperated. In the West Bank, 31 cases of people infected with COVID-19 have been diagnosed. Israeli government has shut schools, colleges, universities, and banned indoor gatherings of over 100 people. It has urged people to refrain from unnecessary gatherings. All foreigners are disallowed into Israel until further notice. They're allowed only if they can prove they are able to self-quarantine for 14 days upon their arrival.

 

  • Even, Canadian Prime Minister Justin Trudeau's wife has been tested positive for COVID-19, his office announced on March 12th. The statement said Sophie Gregoire Trudeau was feeling unwell and would remain in isolation. The first lady had returned from a speaking engagement in the UK and had mild flu-like symptoms, including a low fever, on March 11th night.

 

  • Arsenal manager Mikel Arteta has tested positive for coronavirus, the Club announced on March 12th. The club states that the team's London Colney training center has been shut after diagnosis was confirmed. Similarly Chelsea player Callum Hudson-Odoi and Juventus Player Daniele Rugani have also been tested positive for COVID-19.

  • Coronavirus is probably the most important concern in investors' minds at this moment. And it very well should be. It is predicted that US stocks will go down by at least 20% in the next 3-6 months due to the COVID-19 outbreak. It was also advised to not indulge in the market ETFs and buy long-term bonds. Investors who agreed with this and replicated these trades are up double digits whereas the market is down double digits. It is also advised to get a travel ban into effect as soon as possible for the complete containment of the coronavirus. 

MARKET

Although Corona Virus seems the only important topic of discussion today, with giants like HDFC going down in the Market due to the COVID-19's ripple effect, one cannot simply ignore the fact that there is another bank, a star of the stocks if you will, which also similarly crashed at the Market, not due to COVID-19, unlike HDFC. 

  

The Reserve Bank of India has placed Yes Bank under moratorium. Yes Bank customers cannot make regular withdrawals of more than Rs. 50,000 a day till April 3, subject to a maximum of Rs.5 lakh. This Yes bank crisis has created a lot of stir in the market as well as for the common man. 

Yes bank went on a loaning spree with advances rising by 334% between Financial Year 2014- 2019. Many borrowers started defaulting Yes bank’s gross percentage of loans overdue for more than 90 days, it zoomed to 7.39% as of September 2019, the highest among comparable other banks. While non-lucrative loans kept piling up, the bank did not make enough provisions in its profits. Its provisions were the lowest among the other comparable banks. Customers then withdrew large amounts, resulting in the credit-deposit ratio crossing 100% in 2018-19. That is, it lent more than it received.

Loan spree and high NPA meant poor profitability, gauged by Yes Bank’s sinking Return on Assets. Yes bank’s stock price, then fell steadily in the past year


 "The bank has also experienced serious governance issues and practices in recent years which have led to the steady decline of the bank", says the Reserve Bank of India. 

The RBI has announced a draft ‘Scheme of Reconstruction.' meaning, it entails State Bank of India investing capital to acquire a 49% stake.RBI superseded its board and appointed former SBI CFO Prashant Kumar as the new administrator of Yes Bank.

The impact on customers:

Amount deducted towards loan and premium payments will be impacted if it is higher than Rs. 50,000. It will have an impact on customers who have their salary accounts in Yes Bank. And there is obviously no room for renewing or granting loans and making investments by the bank. Following the crisis, Yes Bank founder Rana Kapoor was placed under arrest by the Enforcement Directorate on 8th March 2020.

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