The Reserve Bank has barred private lender Yes Bank from paying interest on tier-II bonds due on June 29 as its capital adequacy ratio is below the mandatory requirements.
The decision comes after the private lender approached the central bank seeking its approval to pay the due interest for upper tier-II bonds. Interest payments on the bank’s 10.25 per cent unsecured non-convertible upper tier-II bonds issued in 2012 are due on June 29.
“The Reserve Bank of India has expressed its inability to accede to the bank’s request for payment of interest due as on June 29, 2020, 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,” the bank informed the exchanges on Friday.
As per the June 25, 2012 memorandum at the time of issue of the bonds, the interest due will be accumulated and paid later once the bank complies with stipulated regulatory requirements.
“….the specific features of the instrument require debt servicing to be linked to the bank meeting regulatory norms on capital adequacy, its managing director and chief executive Prashant Kumar said.
Asserting that the bank has adequate liquidity to meet all its obligations, Kumar said the coupon on these bonds is cumulative in nature and any unpaid sum will become payable once the bank meets minimum regulatory capital ratio.
The bank’s total capital adequacy ratio had stood at 8.5 per cent, including the tier-I ratio at 6.5 per cent as of March 31 this year. The regulatory requirement is to maintain the tier-I ratio above 8.875 per cent.
The due interest amount and the remaining unpaid shall be paid later, subject to Yes Bank complying with the laid regulatory requirements, the lender said. On Monday, bank’s investors agreed to raise capital of up to Rs 15,000 crore to raise its adequacy ratio, support growth and create buffers for coronavirus pandemic.
As part of the bailout in March, SBI-led consortium and other lenders had infused Rs 10,000 crore into Yes Bank, who’s top management and the board was dissolved by the Union government on March 5 as part of a scheme decided by it with the RBI. As part of the same scheme, over Rs 8,400 crore in additional tier-I bonds were written down.
The Yes Bank scrip closed 0.89 per cent down at Rs 27.75 apiece on the BSE on Monday as against gains of 0.52 per cent on the benchmark.