Mutual funds plan to challenge the central bank’s resolution plan for Yes Bank that envisages a write-off of the lender’s additional tier 1 (AT1) bonds as they claim legal norms require bond owners to be given priority over shareholders when it comes to repayments, according to two senior executives in the mutual fund industry.
RBI’s resolution plan allows equity holders of Yes Bank to retain some value while completely writing off AT1 bonds. “If Basel III AT-1 bonds are written down to zero, what about equity? Technically, AT1 should be senior to equity," tweeted Sivakumar R., head, fixed income, at Axis Mutual Fund. “By all means write down AT1 to zero. But equity must be written down too. Otherwise, what is the meaning of senior?"
As part of the rescue plan, State Bank of India will infuse ₹2,450 crore into Yes Bank.