Private lender YES Bank will default on payment of interest on Upper Tier-II Bonds as it failed to meet regulatory requirements on capital adequacy. In an exchange filing, YES Bank said that the Reserve Bank of India (RBI) has rejected its request to pay interest (coupon) on its Tier II bonds due on June 29, 2020. These unsecured non-convertible Upper Tier II bonds carry coupon of 10.25 per cent.
"Reserve Bank of India has expressed its inability to accede to bank's request for payment of interest dues since the bank does not meet the minimum capital requirements currently. Therefore, the bank would be unable to pay interest/coupon on the said Upper Tier II Bonds which is due for payment on June 29, 2020," YES Bank said in a regulatory filing on June 20.
The cash-strapped lender said the accumulated interest due to its investors would be paid later, subject to the bank complying with the stipulated regulatory requirements. YES Bank, however, did not give a tentative date for the payment of interest.
As of March 31, 2020, YES Bank's capital adequacy ratio stood at 8.5 per cent as against 16.5 per cent in the same period last year. The bank's Tier I ratio was below RBI's regulatory minimum, and thus its Tier II ratio has been restricted to 2 per cent.
On March 5, the Reserve Bank of India had superseded the board of YES Bank and put it under moratorium in wake of deteriorating financial conditions, governance issues, as well as outflow of liquidity. This moratorium was removed on March 18 and the RBI handed over the charge to a new set of board members.
YES Bank plans to raise equity capital to bolster its capital adequacy ratio. It has received shareholders' approval to raise equity capital up to Rs 15,000 crore. Earlier in May, YES Bank's MD and CEO Prashant Kumar had said that the lender was looking to raise Rs 10,000-12,000 crore through a follow-on public offer, a rights issue, or a qualified institutional placement.
For the financial year ended March 31, 2020 (FY20), YES Bank posted a net loss of Rs 16,418.02 crore as compared to profit of Rs 1,720.27 crore at the end of financial year 2018-19. For the March quarter of FY20, the bank reported a net profit of Rs 2,628.61 crore, as against a loss of Rs 1,506.64 crore for the corresponding period a year ago. The bank benefitted from income from write-down of additional tier 1 (AT1) bonds worth Rs 6,296.94 crore.
By Chitranjan Kumar