Money & Banking

Investors left in the lurch as YES Bank writes down AT1 bonds worth ₹8,415 cr

Surabhi Suresh P Iyengar Mumbai | Updated on March 15, 2020

The move is in line with the proposed draft reconstruction scheme by the Reserve Bank of India, which had proposed permanently writing down these bonds.   -  Reuters

Private sector lender YES Bank’s decision to write down its additional tier I (AT1) bonds, worth ₹8,415 crore, has left retail investors aghast.

Many of these investors are individuals whose money in fixed deposits was converted into the AT1 bonds with the promise of a higher return. ‘Many senior citizens fell for the promise, as they were told the bonds were guaranteed by the RBI. Retail investors were lured into AT1 bond investments despite the fact that they were open only to institutional investors.

“After considering a capital infusion of ₹10,000 crore and writedown of Basel III-compliant AT1 bonds aggregating to ₹8,415 crore, the ATI ratio and tier-II ratio are capped at 1.5 per cent and 2 per cent, respectively, if the CET (common equity tier) 1 ratio is below regulatory requirements,” YES Bank said in a media release. 

The move is in line with the proposed draft reconstruction scheme issued by the RBI, which had proposed a writedown of these bonds.

“Additionally, based on the scheme, contractual terms and legal assessment, the bank believes AT1 bonds amounting to ₹8,695 crore can be utilised to enhance the common equity of the bank as of date. The capital infusion and consideration of the AT1 bonds is expected to improve the CET 1 ratio of the bank and enable it to meet the minimum requirements of the RBI,” the bank’s auditor said in a note as part of its Q3 results.

Uncertainty over status

There had been some confusion among investors on the status of these bonds after the government notified the YES Bank Reconstruction Scheme, 2020.

“Unless otherwise expressly provided in this (reconstruction) scheme, all contracts, deeds, bonds, agreements, powers of attorney, grants of legal representation and other instruments of whatever nature, subsisting or having effect immediately before the commencement of this scheme, shall be effective to the extent and in the same manner as was applicable before such commencement,” the reconstruction plan said.

 A number of mutual funds have already filed a petition with the Bombay High Court against the RBI decision to write off the AT1 bonds. Earlier, the bond holders even agreed to the conversion of bonds into equity with an 80 per cent haircut.

Meanwhile, YES Bank said interest on AT1 capital bonds, amounting to ₹8.4 crore, was also due on March 5, and it has sought permission from the RBI to pay it. “As per the terms and condition of the instrument, approval from RBI is a prerequisite for interest payout. The bank has submitted an application for payment of interest on January 5; however, approval for the same is still awaited,” it said.

Published on March 15, 2020

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