Yes Bank To Skip Coupon Payment On Tier-II Bonds

Yes Bank Ltd. will skip payment of interest on upper tier-II bonds as the private lender fails to meet regulatory requirements on capital adequacy.

The bank will be unable to pay 10.25% interest/coupon on the unsecured non-convertible debt instruments, due for payment on June 29, according to an exchange filing. Yes Bank said it received a communication from the Reserve Bank of India, expressing its inability to accede to the private lender’s request for payment of interest as it doesn’t meet the minimum capital requirements currently.

The unpaid interest amount, according to the filing, shall be accumulated and paid out to investors later, if the bank meets the stipulated regulatory requirements.

Yes Bank’s capital adequacy ratio stood at 8.5% as on March 31 compared with the regulatory minimum of 11.5%. Its common equity tier-I ratio stood at 6.3% at the end of the last financial year.

On March 6, CARE Ratings Ltd. had downgraded the 10.25% upper tier-II bonds issued by Yes Bank to C from BBB+. “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 and as such these instruments may exhibit a somewhat sharper migration of the rating compared with conventional subordinated debt instruments,” the ratings agency had said in its statement.

Prashant Kumar, managing director and chief executive officer at Yes Bank, in an analyst call after announcing the fourth-quarter results, said the lender could see more regulatory actions against its operations if its CET-1 ratio falls below 5.5%. It, however, is not clear if the bank’s capital adequacy numbers have worsened since March 31.

The RBI and the government had announced a two-week moratorium on Yes Bank’s ability to service depositors and borrowers in March after the bank’s financial position had worsened. The moratorium was lifted after a clutch of domestic lenders led by State Bank of India agreed to infuse equity in the private lender as part of a reconstruction plan.

This is also not the first time that the regulator has stopped the bank from repaying dues to bond holders. In March, the bank had decided to write-off Rs 8,500 crore worth additional tier-I bonds as part of the reconstruction plan approved by the banking regulator.

Yes Bank’s board will meet on Monday to approve a Rs 10,000-crore follow on public offer as part of the lender’s capital-raising plan. The public offer is aimed at shoring up Yes Bank’s capital base, which will help in providing against bad loans and fund growth plans.