Equity investors should be first to take brunt in case of Yes Bank: AMFI

Equity investors should be the first to take the brunt in case of Yes Bank's restructuring, followed by preference shareholders, and the additional tier-I bondholders should be the last to be touched, mutual fund industry body Amfi said on Wednesday.

The asset management companies have made representations to both Sebi and RBI regarding the same, lobby grouping Amfi's chief executive N S Venkatesh said.

In the restructuring package proposed last week, the RBI had suggested that over Rs 8,000 crore of investments by MFs and bank treasuries in the AT-1 bonds should be written-off completely, leading to the voices of concern being expressed by fund managers.

"We as an industry believe that first equity write-off should happen, then the preference shares has to happen and then only the AT-1 instruments should be written down. This is the thought process we have and which we have taken up with the appropriate authorities," Venkatesh told reporters here.

He added that representations have been made to both banking regulator RBI and capital markets watchdog SEBI regarding this.

Axis Trustee Services has already filed a petition with the Bombay High Court against the RBI proposals.

According to proponents of the move, the AT-1 bond holders are paid a premium of up to 1 percentage point on the coupon rate or the interest which they earn on such investments, because of the riskier nature.

Ratings agency Icra has said that over Rs 93,000 crore of investor wealth is riding on such bonds which form a crucial part of the capital buffers for banks.

However, those raising concerns have been citing provisions wherein capital buffers have to dip below a particular threshold in order for an event to be recognised as a case of extreme stress on the bank, which justifies the write-offs.

Yes Bank, which is set to report it earnings for the December quarter on Saturday, had last disclosed that the common equity tier-I investments are at 8.7 per cent as of September 2019.

Yes Bank was put under moratorium last Thursday and has been placed under several restrictions, including capping depositor withdrawals at Rs 50,000 for a month. As part of the restructuring plan suggested a day later, equity holders are not facing any downside besides the prospect of reducing holding because of the plan to enlarge the capital base.

Yes Bank shares have been gaining momentum in the last few sessions, defying broader market trends.