Nippon Life India Asset Management Company, in a note to investors, has said it has marked down the value of Yes Bank to zero and restricted the subscription limit to Rs 2 lakh per investor in the schemes that have exposure to the private lenders’ bond.
"Perpetual bonds of Yes Bank in the schemes of NIMF have been marked down to zero. The valuation adjustment reflects the uncertainties around the realisable values but does not in any manner indicate any reduction or write off of amount repayable by Yes Bank or eventually realisable by the schemes holding these instruments," the note said.
Nippon AMC has limited fresh inflows in the scheme to Rs 2 lakh per day per scheme per investor till further notice. This limit is imposed only on the new applications, switch-ins, systematic transfer plans and systematic investment plans received after March 5, it said.
Nippon AMC took the decision due to the lack of information and understanding on how regulations and decisions of the RBI and the government will pan out for Yes Bank.
Given the numerous press reports and a release by SBI, which talks about a potential equity participation into Yes Bank, it is apparent that the authorities are seized of the wider implications of continuing with a prolonged period of uncertainty, Nippon AMC said, adding it expects clarity to emerge at the earliest.
The note came in after the Reserve Bank of India imposed a moratorium on Yes Bank and restricted withdrawals.
The mere imposition of moratorium does not necessarily automatically lead to erosion of value in investments in additional Tier-1 bonds issued by the bank, it said. But, the seriousness of invocation under Section 45 cannot be ignored.
The asset management company highlighted that as per the Information Memorandum (IM) of AT1 bonds, in case there is a reconstitution or amalgamation of the bank under Section 45 of Banking Regulation Act 1949, the bank will be deemed as non-viable and trigger for written-down or conversion of the AT1 bonds will be activated.
"In our view, Yes Bank is the fourth largest private sector bank in India with a total asset book of more than Rs 3.45 lakh crore, the deposit base of more than Rs 2 lakh crore (as on 30/09/2019), the bank has huge systemic importance. The RBI and the central government would have considered all options before deciding on the moratorium under Section 45 of Banking Regulation Act 1949," said Nippon AMC.