RBI leaves Yes Bank bondholders high and dry; asks lender to do this before making interest payments

Prashant Kumar, MD and CEO, had earlier said the bank needed Rs 8,800 crore to bring its common equity Tier-1 (CET 1) capital to 10%.

Private-sector lender Yes Bank will not make interest payments to upper Tier-II bondholders on June 29 as the Reserve Bank of India (RBI) has not granted it permission in light of its poor capital adequacy ratio.

This event assumes significance since Yes Bank had earlier written down additional Tier-1 (AT1) bonds worth Rs 8,415 crore in March, as per the reconstruction plan from RBI.

As on March 31, 2020, Yes Bank’s capital adequacy ratio stood at 8.5%, compared with the minimum regulatory level of 11.5%. The bank’s common equity Tier-1 (CET 1) capital stood at 6.3% lower than RBI’s minimum requirement of 8%.

Yes Bank is looking to raise capital to bolster its capital base. Prashant Kumar, MD and CEO, had earlier said the bank needed Rs 8,800 crore to bring its common equity Tier-1 (CET 1) capital to 10%. The private lender has already taken board’s approval to raise Rs 15,000 crore.

Rating agency CARE had earlier downgraded the 10.25% upper tier-II bonds issued by Yes Bank to ‘C’ from ‘BBB+’.

Yes Bank’s upper tier-II bonds also face the risk of getting downgraded to default from rating agencies after the decision of non-payment of interest.

“Any delay in payment of interest/principal (as the case may be) following invocation of the lock-in clause, would constitute as an event of default as per CARE’s definition of default…” the rating agency said in March 2020.