Debt mutual funds have exposure of Rs 2,783.02 crore to papers issued by Yes Bank

By: |
March 7, 2020 5:45 AM

Nippon India MF has limited fresh inflows in the scheme to Rs 2 lakh per day per scheme per investor, till further notice.

rbi, reserve bank of indiaOn Thursday, Reserve Bank of India (RBI) said that in the absence of a credible revival plan, and in public interest imposed a moratorium under section 45 of the Banking Regulation Act, 1949

Debt mutual funds have an exposure of Rs 2,783.02 crore to papers issued by Yes Bank, of which Nippon India MF had investments worth Rs 1,770.24 crore as on January 2020. Apart from Nippon India MF, Franklin MF and UTI MF had exposure of Rs 482.92 crore and Rs 336.67 crore, respectively, shows the data from Value Research. Other fund houses that have an exposure to the bank include Kotak MF, Baroda MF, Aditya Birla Sun Life MF and PGIM MF among others.

On Thursday, few schemes of Nippon India MF saw a fall in the net asset value (NAV) after the fund house marked down its entire exposure to zero in debt schemes holding perpetual bonds of Yes Bank. Many of the debt papers, which are with mutual funds of Yes Bank, are Additional Tier I bonds and non-convertible debentures (NCDs).

Nippon India MF in order to protect the value of existing unitholders of the scheme marked down the exposure in Yes Bank despite the perpetual bonds rated as an investment grade. Any debt paper, which is equal or above BBB- is considered as above investment grade while lower to that are being considered below investment grade. Nippon India MF spokesperson said, “While Yes Bank has been marked down to zero but no segregation has been done. Segregation is only allowed on happening of Sebi defined triggers.”

According to an investor note sent by Nippon India MF, credit rating by ICRA of Yes Bank’s Lower Tier Bonds was A- Negative, Additional Tier I was BBB- Negative and CDs at A2+. However on Friday evening, ICRA downgraded several instruments of Yes Bank to ICRA D. According to the fund houses Yes Bank had exercised call option on 10.25% Tier I Basel II bonds on January 30, 2020, subject to RBI approval. However, on Thursday Yes Bank decided not to exercise the call option. Bank informed it would continue to evaluate redemption or buyback of the said bond, at an appropriate time, subject to requisite regulatory approvals. “Yes Bank has not paid interest on the aforesaid bonds for the period ending March 5, 2020 and informed that it has applied to RBI for its approval to pay annual interest amount,” explained Franklin Templeton in the note.

On Thursday, Reserve Bank of India (RBI) said that in the absence of a credible revival plan, and in public interest imposed a moratorium under section 45 of the Banking Regulation Act, 1949. RBI also superseded the board of Yes Bank for a period of 30 days on ground of a serious deterioration in the financial position of the bank. “We believe Yes Bank is of systemic importance given its large presence in Indian financial sector. The action by RBI is intended to safeguard interest of stakeholders amid prolonged delay in raising of equity capital by Yes Bank,” said note by Franklin Templeton.

Nippon India MF has also limited fresh inflows in the scheme to Rs 2 lakh per day per scheme per investor, till further notice. Market participants say that they are closely monitoring the developments and will be waiting for more clarity on the issue. Apart from mutual funds, Max Financial Services, the holding company for Max Life Insurance has exposure of Rs 2,000 crore to Tier II bonds of Yes Bank.

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