Yes Bank bonds slump by record as concerns loom on stress in credit markets

One of India’s largest private sector lenders slumped by a record in the bond market on Wednesday, as concerns mount over the health of the nation’s finance sector amid a shadow banking crisis.

Dollar bonds of Yes Bank Ltd., which has sizable exposure to the cash-strapped shadow lenders, slumped a record 5.5 cents to 80.9 cents on the dollar on Wednesday, the lowest since the bonds were sold in 2018.

The bank is at the epicenter of rising stress in India’s credit markets, where shock defaults last year by a major infrastructure lender have led to broader strains at other shadow banks. Yes Bank’s shares collapsed about 23 per cent on Tuesday to the lowest since 2009, amid concerns that a cleanup in corporate debt could drag on. Debt woes among India’s non-bank lenders including Indiabulls Housing Finance Ltd. have also prompted jitters for the sector.

“The stock and bonds both are reflecting investor concerns on asset quality, where slower resolutions and rising stress could continue to pose pressure,” said Diksha Gera, a Bloomberg Intelligence analyst.

The drop in Yes Bank’s share price on Tuesday was “primarily on account of the forced sale” of 100 million shares, “triggered by an invocation of pledge on the equity shares of a large stakeholder,” the bank said in a statement on Wednesday. Its financial and operating metrics remain “intrinsically sound” and stable, with its liquidity position “well in excess of regulatory requirements,” it added.

A report had previously said that Yes Bank shares pledged by its co-founder Rana Kapoor, have been sold. The India stock market is closed today for a holiday.

Kapoor stepped down as chief executive officer earlier this year after the Reserve Bank of India refused to grant him another three-year term amid a controversy over bad-debt accounting.