Additional tier-I bond holders to be hit by Rs 10,800 cr if Yes Bank restructuring goes through

One of the biggest losers in case the RBI's restructuring scheme for Yes Bank goes through will be the additional tier-I bond holders who have bets totalling to Rs 10,800 crore on the lender.

The investors in such instruments typically include mutual fund houses and bank treasuries, experts said.

"The instruments qualifying as additional tier-1 capital, issued by Yes Bank under Basel-III framework, shall stand written down permanently, in full, with effect from the appointed date," the draft of the 'Yes Bank Ltd. Reconstruction Scheme, 2020', said.

The draft, which is open for public comments, added that the same is in conformity with the RBI's regulations based on the Basel framework.

"This is for the first time in the history of the Indian banking sector that a bank's T1 bonds are being written down at the 'point of non-viability' (PONV) i.e. the investors have to take a hit on both principal and the balance interest payments," Acuite Ratings President Suman Chowdhury said.

Both Acuite and its larger peer Icra Ratings said the value of the debt which will be wiped off in full will stand at Rs 10,800 crore.

Following the announcement and also a downgrade of Yes Bank's ratings by rating agencies, Baroda Mutual Fund segregated the portfolios in two schemes -- Baroda Treasury Advantage Fund and Baroda Credit Risk Fund -- and marked down the value of investments to zero.

As part of the restructuring package, SBI is all set to invest up to Rs 2,450 crore to take a 49 per cent stake in the beleaguered lender and ensure that its holding does not go below 26 per cent for the first three years after entering.

The RBI's draft also proposes a host of other requirements which may be seen as detrimental by the current promoters of the bank, and also vests greater powers in the appointment of the management.

It proposes deletion of four articles of association from the appointed date of the transaction, which will include rights of Indian partners to appoint three independent representative directors, recommend the name of the chairman and the chief executive and appoint whole-time directors.

The newly appointed board of directors of the reconstructed bank will, however, have the freedom to discontinue the services of the key managerial personnel at any point of time after following the due procedure, it said.