Why Yes Bank’s bailout has panicked markets

State Bank of India SBI, the nation’s largest state-owned financial institution, along with a six private sector banks that includes Housing Development Finance Corporation HDFC, Kotak Mahindra Bank, and Axis Bank will together account for a 75% ownership of Yes Bank, the fourth largest private sector bank in India following a near $1.4 billion agreement reached this month. 

The bailout reflects the tasks facing the Reserve Bank of India RBI to write-off distressed assets without inducing a system wide panic. But by allocating both public and private money into the rescue, investors and depositors are now questioning what other dangers lurk within the country’s financial...