Yes Bank: Basel 2 Upper Tier 2 bond downgrades to D by ICRA & CARE

The ratings downgraded on Yes Bank Limited’s (YBL) Basel 2 Upper Tier 2 Bonds, which has a particular feature wherein, the debt servicing is linked with bank meeting, the regulatory norm on capitalisation i.e. capital to risk weighted assets ratio (CRAR) should be 9 per cent.

While the bank has enough liquidity for coupon payment, CRAR being 8.5 per cent, the bank will be unable to service the upcoming coupon payment. The coupon being cumulative in nature, the same is likely to be serviced once the bank achieves a CRAR of 9 per cent.

ICRA and CARE has downgraded the ratings for the aforesaid instrument as (ICRA) D and CARE D (Single D) took into account the net loss of Rs 16,418 crore reported by the company in FY20 as well as the CRAR of 8.5 per cent. The rating also factors in the probability of high credit cost due to the weak operating environment along with high overdue advances. YBL has not paid a coupon for Basel 2 Tier 1 bond, which was due on March 5, 2020.

Meanwhile, on March 6, 2020, RBI had announced a draft scheme of reconstruction for the bank known as ‘Yes Bank Reconstruction Scheme, 2020’ which came into effect on March 13, 2020. State Bank of India and other domestic private sector financial institutions have invested Rs 10,000 crore as a part of restructuring scheme.

ICRA could revise and upgrade the outlook of YBL if it’s able to raise sufficient capital to meet the regulatory norms of capital ratios on constant basis.