A day after its upper Tier-II bonds were downgraded to default grade, Yes Bank said that it has enough liquidity to meet all its obligations. “For Basel II, Upper Tier II Bonds, the specific features of the instrument require debt servicing to be linked to the bank meeting legal norms on capital adequacy ratio. FY 2019-20 financial results of Yes Bank, announced on May 6, 2020, had declared that it did not meet the regulatory capital ratio requirement as on March 31, 2020, and, therefore, its incapability to service the coupon due on June 29, 2020, is solely a function of the Bank being below the regulatory capital threshold as on March 31, 2020,” the bank said in a notification.
In addition, bank stressed that the coupon on these bonds (Basel-II, upper Tier-II bonds) was cumulative in nature and any unpaid sum would become payable once the bank met minimum requirement related to regulatory capital ratio subject to the required regulatory approvals.
Icra and CARE Ratings had both downgraded Yes Bank’s upper Tier-II bonds on Tuesday. The CARE decline or downgrade took into consideration the bonds’ increased sensitivity and volatility to Yes Bank’s capital adequacy ratio (CAR), capital raising ability, and profitability during the long tenure of the instruments. “The rating factors in the additional risk may be arising due to the existence of the lock-in clause in hybrid instruments. Any delay in payment of principal/interest(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 also exhibit a somewhat sharper migration of the rating compared with conventional subordinated debt instruments,” the agency said.