Virus and Yes Bank debacle dash hopes of recovery

It has been a dreadful few weeks for India’s economy. This started with the release of GDP data showing that growth in Q4 slowed to its weakest pace since 2013. And hopes of a near-term recovery have been well and truly snuffed out since then. The RBI’s rescue of the failing Yes Bank was intended to reduce the immediate threat to financial stability, but the restrictions placed on deposit withdrawals threatened a bank run on other private lenders. While that fate appears to have been avoided, the entire debacle will surely cause banks in India to become even more risk averse and further curb lending. More important, the spread of the coronavirus both globally and within India will weigh heavily on external and domestic demand over the coming quarters.