Six Yes Bank bonds under Care watch 

Currently, these infrastructure, tier II and perpetual bonds are marked AAA and AA+, but put “under watch with developing implications”.
File Image of Yes Bank used for representational purpose only.
File Image of Yes Bank used for representational purpose only.

MUMBAI:  In a setback to Yes Bank, Care Ratings has put six bonds of the private lender aggregating Rs 21,370 crore under watch.

Currently, these infrastructure, tier II and perpetual bonds are marked AAA and AA+, but put “under watch with developing implications” due to their increased sensitivity to the bank’s capital adequacy ratio, capital raising ability and profitability.

Typically, ‘under watch’ in ratings firms’ jargon implies that they could either be upgraded, downgraded or reaffirmed once the uncertainty gets resolved. Care said it was due to the recent communication from RBI restricting the tenure of MD & CEO Rana Kapoor till January 2019 as against the three-year extension approved by shareholders. 

“Considering that Kapoor is a founding director and has been a key management person for the bank since its inception and had played an instrumental role in its growth, identification and selection of the successor for Kapoor would be critical for future prospects of the bank,” Care noted. It had taken note of the bank’s recent Board meeting, which appointed a committee to identify Kapoor’s successor, besides asking RBI to extend Kapoor’s tenure till April or September 2019.  

“The rating factors in the additional risk due to existence of the lock-in clause in hybrid instruments. 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,” it noted. 

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