Icra rates 1st Basel III-compliant tier I bonds from Yes Bank

Domestic rating agency Icra today gave a stable outlook to the Basel III-compliant Rs 300 crore tier-I bond issuance by Yes Bank, making it the first such instrument from the country.
Yes Bank is the first domestic bank to issue a capital instrument that is compliant with the Basel III capital norms, which has been assigned an A (Hyb) rating by Icra, the agency said.
Though many banks have raised money through Basel III- compliant tier II bonds, Yes Bank is the first to issue tier I bonds meeting the stringent Basel III norms.
Last month state-run Union Bank of India had raised additional capital to the extent of Rs 2,000 crore by issuing Basel III compliant tier II bonds.

In September, another state-run lender Bank of India had also mopped up Rs 1000 crore by issuing Basel III-complaint tier-ll bonds to LIC with a one-year maturity.
The rating for the Basel III-compliant tier I bonds is three notches lower than the Basel II-complaint lower tier II bonds of the bank as they have the loss absorption features in compliance with RBI guidelines on Basel III capital norms, issued in May 2012, that make them riskier, the agency said.
Commenting on the rating, Vibha Batra of Icra said the rating factors in Yes Bank's continued robust operating performance with strong profitability indicators on the back of its ability to generate high levels of fee income, comfortable asset quality technology initiatives and rising Casa base, which stood at 20.39 per cent as of Q2.

Karthik Srinivasan of Icra said as local market evolves, this instrument would be an important tool to partly meet large capital requirements of domestic banks. While Basel III bonds are likely to absorb losses on breach of loss triggers, Icra expects prudent regulatory provisions, close supervision and RBI oversight to help banks lower probability of capital erosion, and thus triggering any breach.