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Write-down of Yes Bank bonds: Retail investors suffer Rs 1,000-crore loss

The bank last week said the perpetual subordinated Basel III compliant ATI bonds worth Rs 3,000 crore issued on December 23, 2016 and ATI bonds worth Rs 5,415 crore issued on October 18, 2017 “have been fully written down and stand extinguished with immediate effect”.

Yes Bank crisis, Yes Bank NPA, Yes Bank bonds, what is AT-1 bonds, Yes bank news, what is yes bank crisis Yes bank RBI, RBI plan for Yes Bank, Indian Express As per ICRA’s estimates, Rs 93,669 crore of AT1 bonds will be outstanding as on date (Rs 84,574 excluding Yes Bank), of which Rs 39,315 crore will be of private banks (Rs 30,620 crore excluding Yes Bank). (File Photo)

Close to Rs 1,000 crore of retail investors’ money has evaporated after the Yes Bank management decided to write-down Additional Tier 1 bonds (AT1) worth Rs 8,415 crore. While mutual funds, insurance firms, pension funds and provident funds had invested over Rs 6,300 crore in the bank’s bonds, retail investors (including non-resident Indians and others) had an exposure of Rs 996 crore and other institutional investors accounted for the balance.

The bank last week said the perpetual subordinated Basel III compliant ATI bonds worth Rs 3,000 crore issued on December 23, 2016 and ATI bonds worth Rs 5,415 crore issued on October 18, 2017 “have been fully written down and stand extinguished with immediate effect”.

Read| RBI and govt are poised to implement a rescue plan for Yes Bank that can be only described as bizarre

On Tuesday, Yes Bank Administrator Prashant Kumar refused to comment anything beyond this, saying “the matter is sub judice”. The Yes Bank write-down is expected to cast a shadow over the remaining Rs 84,500 crore AT1 bond exposure of the banking sector (excluding Yes Bank) and impact future bond issues, analysts and rating agencies have said. Retail investors had invested Rs 466 crore in the first AT1 bond issue (Rs 3,000 crore) and Rs 530 crore in the second issue (Rs 5,415 crore), according to the data available from fund houses. AT1 bonds are unsecured perpetual bonds — with no maturity — issued by banks to shore up their capital base to meet Basel III requirements, but carry higher coupon due to the risk involved. While Yes Bank’s Basel III Tier-2 bonds maturing in 2027 had a coupon of 7.8 per cent in October 2017, coupon on AT1 bonds was 9 per cent. “Most of the retail investors were not aware of the high risk involved in AT1 bonds and they went by the higher returns. AT1 bonds offer 1.5 to 2 per cent interest rate more than other instruments,” said an analyst.

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Some of the big investors have already approached the Bombay High Court against the bond writedown. Retail investors said the bank’s relationship managers (RMs) approached fixed deposit holders to convert their FDs into high-yielding AT1 bonds, but these RMs kept depositors in the dark about the high risk involved in such bonds. “Yes Bank RMs using the bank database converted FDs of senior citizens… they lured them (depositors) to invest in AT1 bonds which has now been written down. Their lifetime savings are now worth zero,” an investor tweeted.

“I was sold these bonds by Yes bank senior staff and they convinced me it was a very safe debt option. As a holder of this AT1 bond, I vehemently reject the draft scheme of reconstruction of Yes Bank,” said another investor. “My retired father has also invested in DHFL NCDs. There also our money is stuck. For a tax paying honest citizen, what are you people leaving us as a choice? I can’t put my money in debt mutual funds, I can’t put money in bonds, FD interest rates are going south every other month and I don’t have any pension as I was not a government servant. If these bonds were so risky, why did the RBI allow them to be sold to gullible retail investors. Ultimately it is all retail investors who are impacted by these bonds becoming zero,” another investor tweeted.

While retail investors who flooded Twitter against the writedown said they were attracted by the high interest rate, most do not have the financial acumen to read the fine print on the risks. “I had invested all my savings in Yes Bank AT1 perpetual bonds, being advised that bonds safer instrument for investment. I invested for my son’s higher education. As a mother and a working lady, I am devastated. It is my hard earned money,” tweeted a bondholder.

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As per ICRA’s estimates, Rs 93,669 crore of AT1 bonds will be outstanding as on date (Rs 84,574 excluding Yes Bank), of which Rs 39,315 crore will be of private banks (Rs 30,620 crore excluding Yes Bank). Most of these bonds were issued during FY2017 and FY2018, with first call option after fifth year from issuance and, hence, large bonds are due for call in FY2022 and FY2023. Amid risks from the recent event, investors’ appetite for future issuances of AT1 bonds to reduce, thereby constraining banks from rolling over these bonds by exercising call option and fresh issuance, ICRA said.

First published on: 18-03-2020 at 03:04:50 am
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