Rating agency ICRA, on Tuesday, downgraded the Basel II-compliant Upper Tier II bonds of YES Bank to D. The development comes in the backdrop of the Reserve Bank of India barring the private sector lender from paying interest (coupon) on the Tier II bonds as its capital adequacy ratio was below the regulatory requirements.

“The rating downgrade on YES Bank’s Basel II Upper Tier II Bonds factors in the specific features of the instrument, where the debt servicing is linked to the bank meeting the regulatory norms on capitalisation that is CRAR of 9 per cent,” said ICRA.

In all, it has taken rating action on bonds amounting to ₹32,611.70 crore.

“In case the bank reports a loss, the coupon or redemption can be paid with the prior approval of the Reserve Bank of India (RBI), provided that on such payment, the CRAR remains above nine per cent,” it noted.

ICRA further said that the ratings take into account the reported net loss of ₹16,418 crore in FY2020 and the CRAR of 8.5 per cent as on March 31, 2020, as well as the likelihood of high credit costs in the weak operating environment.

In May, YES Bank had filed an application with the RBI seeking approval for the payment of 10.25 per cent interest due as on June 29on the unsecured non-convertible Upper Tier II bonds.

ICRA noted that YES Bank had not paid a coupon, which was due on the Basel II Tier I Bonds on March 5, while the Basel III AT-I instrument (₹8,415 crore) was written down as a part of the restructuring of liabilities.

It also continues to have Basel III AT-I Bonds of ₹280 crore, the servicing of which will remain contingent on its ability to maintain the regulatory capital ratios and profitable operations, the agency said.

Prashant Kumar, Managing Director and CEO, YES Bank, had said the bank has adequate liquidity to meet all its obligations. “I would like to stress that the coupon on these bonds (Basel II, Upper Tier II Bonds) is cumulative in nature and any unpaid sum will become payable once the bank meets minimum regulatory capital ratio,” he had said.

YES Bank is in the midst of a capital-raising exercise and is expected to raise as much as ₹15,000 crore by July-end.

Published on June 23, 2020

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